Niu is a cheap growth stock that is operating in the highly disruptive electric vehicle segment making it a winning bet right now.
Dec. 1, 2021
The current year has been extremely harsh for China-based companies driven by the lack of transparency associated with the country and the government's crackdown on multiple tech companies. However, the ongoing pullback provides investors an attractive window of opportunity to buy quality stocks at a lower multiple.
One such electric vehicle stock that should be on the top of your buying list is Niu Technologies (NASDAQ: NIU). Niu is a company that designs and manufactures electric scooters and let's see why it is an EV stock that I'm buying today.
A look at Niu's financials
Valued at a market cap of $1.55 billion, Niu stock is down 27% in 2021 and 59% below all-time highs. Despite the ongoing pullback, Niu has returned 136% to investors since its IPO in October 2018.
Niu has managed to increase sales from $120.9 million in 2018 to $380 million in 2020. In Q3 of 2021, revenue was up 37.1% year over year at $190.3 million. This was below Wall Street revenue estimates of $217.69 million. The company also reported earnings per share of $0.09, below consensus estimates of $0.28.
It ended the quarter with a gross margin of 20%, below the year-ago margin of 20.9%. Niu attributed the decline in gross margin to lower international sales that declined by more than 11% year over year.
As Niu missed both revenue and earnings forecast in the quarter, its share price fell by 20% on November 22, following its quarterly results.
What do I like about Niu?
Despite supply chain disruptions impacting the manufacturing sector, Niu managed to increase its e-scooter deliveries by 58.3% year over year to 397,079 units. The company's ongoing expansion of its product portfolio and retail coverage coupled with targeted promotional strategies drove sales volume higher in Q3, allowing it to increase market share.
Niu is part of an expanding addressable market as the e-scooter segment is forecast to grow at an annual rate of 29.4% between 2021 and 2028 to touch $644.5 billion, allowing it to expand top-line at an enviable pace in the upcoming decade.
The ongoing pandemic has acted as a near-term tailwind for companies part of the short-range personal commuting segment. Further, the demand for micro-mobility solutions in China is expected to remain robust going forward.
Risks to Niu's share price
Niu is targeting a niche segment and will be impacted negatively in case a competitor gains market share. Further, over 10% of its operating income in Q3 was derived from government grants, and this figure will move lower as EV adoption gains momentum.
International sales should be a key revenue driver for Niu in 2022. However, the number of units sold in the international market fell by 11.2% year over year in Q3.
Niu's growth potential
Niu is one of the cheapest EV stocks on the market and is valued at a price to 2022 sales multiple of 1.7x and a price to earnings ratio of 19.4x. The stock should outpace the broader markets in the future, especially if Niu can successfully expand into other international markets.
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