Investors Still Aren't Entirely Convinced By NIO Inc.'s (NYSE:NIO) Revenues Despite 26% Price Jump

NIO Inc. (NYSE:NIO) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 7.3% over the last year.

Even after such a large jump in price, NIO's price-to-sales (or "P/S") ratio of 2.2x might still make it look like a strong buy right now compared to the wider Auto industry in the United States, where around half of the companies have P/S ratios above 4.4x and even P/S above 10x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for NIO

What Does NIO's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, NIO has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on NIO will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For NIO?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like NIO's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 27% last year. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 37% per year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 33% each year, which is noticeably less attractive.

With this information, we find it odd that NIO is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

Shares in NIO have risen appreciably however, its P/S is still subdued. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

To us, it seems NIO currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for NIO you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.