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Don’t Let China’s Regulatory Crackdown Deter You From Owning Nio Shares

Sometimes, I think about the days when shares of Chinese electric vehicle start-up Nio (NYSE:NIO) traded for $2.50 apiece. Undoubtedly, we all wish that we had a time machine, so that we could go back and load up on NIO stock when it was super-cheap.

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Unfortunately (or maybe not), humankind hasn’t perfected a time machine quite yet. Until that happens, we’ll have to accept the prices that exist now and decide whether our favorite stocks are still worth buying.

But here’s where it gets interesting. NIO stock has grown in price substantially, but it unexpectedly pulled back in early July.

Is it the company’s fault? Are there major problems that investors should be aware of? We’ll answer these questions and more today, starting with a recap of the exciting recent price action.

A Closer Look at NIO Stock

NIO stock started 2021 out on a high note, hitting the low $60’s not just once, but three separate times in January and February.

That’s what technical analysts might call a “triple top.” It’s indicative of solid resistance from the sellers. In some instances, it may be a sign that it’s time for traders to take profits.

As it turned out, NIO stock provided a textbook example of a “triple top” and the trouble that could ensue. Starting in February, the stock ran out of gas and declined for several months.

The short-term bottom wasn’t reached until the middle of May. At that time, the share price fell all the way down to the low $30’s.

Since then, the bulls have managed to stage a partial recovery – but as I alluded to earlier, early July held a negative surprise.

From July 1 to July 8, NIO stock quickly dropped from $50 to $45. This represents a 10% pullback.

It’s important for investors to learn what may have caused this to happen, and whether it’s the company’s fault or not.

Collateral Damage

In a major news development, the Chinese government recently initiated cybersecurity reviews targeting a number of companies listed on U.S. markets.

Apparently, the Chinese government is concerned Chinese consumers’ information may be compromised.

The upshot was negative price pressure upon some Chinese stocks listed on U.S. exchanges.

Perhaps the most notorious example has been Didi Global (NYSE:DIDI). I won’t go into the gory details, but suffice it to say that this company’s investors were hit hard.

I suppose you could call it “collateral damage” as it seems that investors dumped a variety of stocks representing China-based companies.

Really, though, this isn’t Nio’s fault. Didi reportedly isn’t allowed to register new users, so I can see why that company’s investors are fearful.

Growing by Leaps and Bounds

Meanwhile, there aren’t restrictions on buying cars from Nio. As the old (and admittedly weird) saying goes, there’s no need to throw the baby out with the bathwater.

So, let’s delve into the company that we came here to discuss. As the data shows, Nio is absolutely firing on all cylinders.

In June 2021, the automaker delivered 8,083 vehicles. That represents a whopping 116.1% increase on a year-over-year basis, and a new monthly record.

Now, let’s look at the three months that ended in June. During that period, Nio marked a new quarterly record with a 111.9% year-over-year increase in deliveries.

It shouldn’t be too surprising, then, that Mizuho Securities analyst Vijay Rakesh is leaning bullish on NIO stock.

Reportedly, Rakesh expects Nio’s sales momentum to continue through the end of the year, and has placed an ambitious $65 price target on the stock.

The Bottom Line

It’s probably a big mistake to dump all of your China-based stocks because of Didi’s problems.

Don’t get me wrong – China’s cybersecurity investigation will have repercussions in the markets.

Yet, there won’t likely be long-term issues for Nio, which remains in hyper-growth mode and seems unstoppable at this point.

On the date of publication, David Moadel 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.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.