Buying growth stocks when profits are just rumours can seem like a tempting fortune. But some companies reward investor confidence. And high-flying stocks can add to their attractive valuations, giving investors another opportunity to buy in the trend.
That seems to be the case with a trio of electric-vehicle makers: China’s NIO (ticker: NIO), XPeng (XPEV), and Li Auto (LI).
baron’s In December 2020, these three US-listed Chinese EV start-ups were banned. We had fundamental reasons for this, including more EV competition and falling government subsidies. We are also concerned about a wider rotation of growth stocks.
But Bear’s case boiled down to evaluation. Chinese EV players were trading at an estimated 13 times next year’s sales on average. This was slightly higher than that of Tesla (TSLA), which was trading at the same time.
Claiming that growth stocks are expensive may not be bold, but it turned out to be a good call. Shares of NIO are down since the article was published. XPeng stock is up about 15%. On average, they’re up about 5%. Ford Motor (F) and General Motors (GM) are up 119% and 44%, respectively. Stock in EV leader Tesla has returned nearly 77%. The S&P 500 is up 25% over the same period.
The automotive business wasn’t just Chinese EV players in 2021. This may change next year. After a year of sales growth and flat stock performance, the picture looks completely different.
Chinese EV players will grow sales on a combined basis, about 160% in 2021, making them business at around 6.5 times next year’s projected sales. Tesla’s stock is up 53% so far in 2021 — adding to its epic 2020 run, when it gained 743% — trading it at nearly 15 times projected 2022 sales.
Now, three Chinese EV makers are trading Tesla at a big discount. The estimated sales growth of Threesome watches for 2022 is approximately 75%. Tesla should still increase sales by an impressive 40% to 50%.
Other stock catalysts are also coming. Citigroup analyst Jeff Chung wrote last week that NIO’s Investor Day, in mid-December, and pricing details coming out for its new ET5 sedan will help boost investor confidence. The ET5 will compete with EVs like the Tesla Model 3.
Monthly delivery results can also give rise to the three stocks. XPeng posted better-than-expected earnings last week, and management’s guidance for the fourth quarter means roughly 12,000 vehicles will be delivered in both November and December, breaking its monthly record.
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Lee Auto is due to report third quarter figures November 29, Investors should expect sales beat. Both NIO and XPeng outperformed third-quarter sales estimates. For Lee, Wall Street is looking for $1.13 billion in sales, up from about $370 million in the third quarter of 2020.
Analysts predict the trio will continue to be profitable from 2022 to 2024, and there’s no need to go back to stocks that aren’t making profits. However, it’s hard to deny that growth is significant and the outlook for EV sales looks better at the end of 2021 than last year.
EV penetration in new Chinese car sales reached nearly 20% in October. Admission for all of 2020 was around 6%.
It sounds like development to us.
write to Al Root [email protected]