Why NIO Stock Surged 30% in November

MarketsMotley Fool

What happened

Shares of NIO (NYSE: NIO) rocketed 30.7% higher last month, according to data provided by S&P Global Market Intelligence, after the Chinese electric-vehicle maker reported solid production growth and a couple of notable investors took bullish positions on its stock.

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So what

NIO's third-quarter results showed a strong ramp-up in production of its upscale ES8 electric SUV. The company manufactured 4,206 ES8s and delivered 3,268 to customers. That's up sharply from the 500 vehicles that NIO built when it began production in June.

Shortly thereafter, fund manager Baillie Gifford & Co. revealed in a regulatory filing that it purchased an 11% stake in NIO. Baillie Gifford also owns a large stake in Tesla (NASDAQ: TSLA), and investors appear to be thinking that the respected fund manager sees similar potential for NIO as it did for the Elon Musk-led electric vehicle leader.

NIO's stock price gains accelerated later in November after noted short-seller Citron Research published a bullish report on the company. Citron also recently produced a positive report on Tesla after previously recommending that investors short the stock. Now Citron says that, like Tesla, NIO is "so much more" than just an electric car story. Citron highlighted NIO's strong brand, highly regarded consumer experience, and huge opportunity in the Chinese luxury vehicle market.

Now what

After pulling back nearly 10% in December, NIO's market capitalization currently checks in at slightly more than $7 billion. The recent IPO is not yet profitable, so traditional valuation metrics like price-to-earnings ratio offer little insight here. NIO does, however, have more than $1 billion in cash reserves to fund its operations as it continues to ramp up production. Investors should, therefore, keep a close eye on NIO's ability to hit its vehicle production targets as it works toward profitability.

And if you're an aggressive growth investor seeking a way to profit from the exponential expansion of the Chinese electric vehicle market, NIO could be worth a look.

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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.