Nio (NYSE:NIO) stock has a few significant headwinds to fight off. At the same time, there are expectations that it should perform well when it releases earnings in March.
Let’s jump right into the positive first, and then the negative. That said, my intuition is that the negatives right now should serve to weigh Nio down for the next few weeks and beyond its March 7 earnings date.
Anyway, onto the good news first.
Earnings Should Be Strong for NIO Stock
The positive news is that Nio should continue to perform well when it releases earnings on March 7. Early indications are that Nio will report earnings per share figures somewhere in the neighborhood of $-0.14. That negative number might not seem particularly attractive, but remember, Nio reported $-1.05 EPS in the fourth quarter (Q4) of 2020.
There is reason to believe Nio should be strong otherwise. It should report roughly $5.63 billion in revenues in 2021. That number is anticipated to increase to $9.88 billion in 2022. But that is a longer term view than in the next few weeks and months. Unfortunately, Nio faces some serious headwinds in that period.
For one, the pressure on tech stocks should ratchet upward drastically.
Tech Woes Should Increase
That is true because inflation hit another 40-year high in January, reaching 7.5%. That was even higher than the 7.2%, which was anticipated.
That is a particular problem for Nio stock as it is a tech stock. Tech stocks were already feeling pressure because of December’s inflation figures, which reached 7%. That, too, was a 40-year high.
That rising inflation triggered mass speculation that the U.S. Federal Reserve will raise interest rates to curb inflation’s effects. Rising interest rates signal the end of easy money, which in turn causes investors to flee tech stocks.
That was clearly on display as tech stocks suffered heavy losses in January on the heels of the December inflation figures release. Given that February’s numbers are even worse, expect more of the same.
So, my thought is this: Nio will be weighed down by those worries as March begins. We won’t have February numbers until after Nio releases earnings on March 7. Investors are going to be hesitant to push capital into Nio even if it does report strong numbers for fear that February inflation also surprises negatively.
And on top of that, Nio already had a problem with declining deliveries.
Deliveries Slipped in January
December was a strong month for Nio in terms of deliveries. It delivered 10,489 vehicles. However, January didn’t go as well for the Chinese electric vehicle (EV) manufacturer.
It delivered 9,652 vehicles in the month. While that represented 33.6% growth over the same month last year, it was a decline sequentially.
It really boils down to market perception. Investors didn’t react much to the news when it was released on Feb. 1. Share prices pretty much stayed steady.
What to do With NIO Stock
I believe that over the next few weeks, NIO stock will trade sideways at best. My belief is that the tech sector simply faces headwinds that are currently too strong. Nio remains a strong bet for the long term. I have never wavered on that opinion. EVs have proven that they are the future of automobiles. And Nio has proven that it is a leader among the future of automobiles.
But the reality is that inflation is out of control right now. Whether EVs are here stay doesn’t really figure into the conversation at the moment. Consumers experienced 7% inflation in December, and 7.5% inflation in January. That hurts tech stocks in a very tangible way as January proved. February is about to get worse. And then we have to wait and see how March turns out. None of that bodes well for Nio or any other equity in the tech sector.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.