Has Tesla Rival Nio Flown Too Close to the Sun?

Nio's performance in 2021 will be watched closely

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Electric vehicle (EV) manufacturer and Tesla (TSLA) rival Nio Inc (NYSE:NIO) is still a relatively new company, having been founded in 2014. The company developed its first electric vehicle model in 2016, and subsequently made their first model available to the public in December of 2017. NIO completed its first vehicle deliveries as recently as 2018. it doesn't have the name-brand recognition yet of Elon Musk and Tesla, but it stands to be a player in the EV market for years to come.

Nio stock has had an incredible year in 2020, gaining more than 1,100% year-to-date. To fully comprehend NIO's breakout, the shares were sitting just under $3 to start the year, and traded as high as $57.20 back in November. The stock's pullback since then has found support at its 40-day moving average, and more tailwinds could come from a shift in analyst sentiment, considering five of the seven in coverage maintain tepid "hold" ratings.

NIO Stock Chart

NIO has beat Wall Street's earnings expectations for three consecutive quarters, even amid tight margins. As for the company's next earnings report due out in 2021, Wall Street is expecting another increase in EPS to be reported.

It is difficult to sufficiently judge NIO on a purely fundamental basis due its lack of history. However, since the company first started generating sales, NIO has increased its annual revenue by about 50%. Take into account that 2020 was wrought with the Covid-19 pandemic, making the overall revenue growth even more impressive. The company’s net losses have continuously grown as a result of its growing operations, which is to be expected of a company in its growth stage like NIO is. Perhaps most concerning when reviewing NIO’s fundamentals though, is its negative equity.

Unfortunately, the Covid-19 outbreak has skewed NIO's numbers for 2020, making it more difficult to project what NIO’s growth rate will look like in 2021 and 2022. However, the incredible stock growth NIO demonstrated in 2020 would indicate that investors are still placing bets on the company growing exponentially in the coming years.

In 2020, NIO reached a huge market cap of $76 billion. However, it did so without accomplishing much other than beating analyst expectations, as noted above. The reality is that NIO stock has largely benefited from the growing hype around the EV sector and Tesla’s (TSLA) success in 2020. Tesla stock's recent growth has left a lot of investors feeling like they may have missed out in the EV sector, causing investors to place their bets on the “next best thing." The issue with this is that NIO is not Tesla. Although NIO may very well end up being one of the biggest manufacturers of electric vehicles, the company still has too many instabilities to go all in.

Overall, NIO stock seems to have promising potential, but is incredibly overpriced right now. The company has yet to prove that it is worthy of its huge market cap, so using options to decrease your exposure risk could be a prudent play.

Now is a great time to consider options buying on NIO. NIO stock's Schaeffer's Volatility Scorecard (SVS) currently comes in at 99 out of 100. This scorecard is used to identify which underlying stock options have historically had underpriced or overpriced options. High SVS readings, especially readings as high as 99, indicate consistently realized greater volatility than its options have priced in -- pointing to NIO stock being a potential premium-buying candidate that options traders should definitely be watching for opportunity.

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