Penny Stock To Watch: Nio Inc (NIO)
Chinese electric vehicle manufacturer Nio Inc (NIO – Stock Report) has been one of the more interesting penny stocks to watch. It listed New York Stock Exchange around a year ago and seemed promising, initially. You can’t argue the fact that an IPO price of under $7 followed by a run to highs of over $13 is something to take lightly.
Even though it pulled back after that, things didn’t appear drastic (yet). It reached its highest level in 2019 this past March. But since then it has been a struggle. The Q2 2019 earnings report has come as another blow for NIO stock.
A Penny Stock With Poor Earnings
The company reported growth in deliveries from the previous quarter. But that came at the cost higher than expected. There’s now a genuine fear that the company might run out of cash. After NIO announced its Q2 2019 results on September 24, the stock tanked by as much as 45%. It could just be the start of a longer downturn.
While NIO did manage to beat revenue expectations, it performed poorly on all other parameters. Despite the bearish stance from most analysts, NIO managed to perform worse than expectations on key parameters.
The company posted negative gross margins of 10.9% and operating losses of as much as RMB 3 billion. Morgan Stanley stated that the company might have embarked on a cost-cutting spree but weaker demand would delay any kind of turnaround for a while.
What’s Next For Nio Stock?
However, analysts at Bernstein have indicated that the company could be in danger of running out of cash. That’s due to the high volume of cash burn. The analysts stated that by the end of June, the company had RMB 3.5 billion in cash. Despite the fact that NIO had reduced cash burn, Bernstein stated that they believe Nio was supposed to run out of cash by Q3 2019 if not for an emergency cash injection.
The converted issuance of $200 million to two big-ticket investors seems to have saved the company from running out of cash (for now). The analysts went on to assert that NIO is now running from week to week in terms of its cash situation. It is quite clear that the company is running on fumes.
If an investor does come along, a lot of dilution might take place. So this is something to keep in mind. At the end of the day, Nio continues to hover near all-time lows but still has attracted those looking for cheap shares. The only question now is, “are NIO shares cheap or do they still have more sliding to do?”