Niu is a world leader in the development, design, manufacture and sales of electric bicycles and scooters, and the company maintains a wide-ranging portfolio of both top-end and mid-level vehicles, including the high-performance NIU Aero, as well as the urban commuter RQi and TQi series.
The business is mainly focused on sales within the China market, with just under 138,000 vehicles purchased there compared to 12,000 sold internationally.
Is Niu Stock Undervalued?
Share prices in Niu stock witnessed considerable growth throughout 2020 and continued to climb even higher going into 2021.
From its IPO filing in 2018, Niu has seen its shares trading from lows of around $6, to a high of $53.38 earlier this year. The company is riding the tailwinds of the electric vehicle market, and investors enjoyed a 6x increase just in 2021.
Analysts have predicted a consensus estimate P/E multiple of 45x for Dec 2021, down from a previous estimate for Dec 2020 of 105.90.
Revenue estimates for the same period are expected to see earnings grow from $370M to $650M. This suggests revenue growth of less than double for the fiscal year, which, combined with the drop in P/E values of more than a half – and outside of any estimate surprise or further revision – would imply a decrease in share price between now and the end of the year.
Will Niu Stock Fall?
Niu faces risk factors to its business on three main fronts:
1. Recent sales growth has not been organic
There is an argument to be made that the driving force behind Niu’s latest revenue growth has come from China’s new “Safety technical specification for electric bicycles” regulatory framework.
The guidance outlined in the regulation updates the safety standards for electric scooters, meaning that a majority of bike owners will need to purchase new models either now and in the near future.
This is a boon for the company in the short-term, but the demand generated by replacement purchases is not sustainable, and predicted future sales numbers should not be predicated on those being clocked right now.
2. Expanding International sales will be difficult
Niu’s sales numbers outside of China could pose a particular problem for the firm’s expansion aspirations in the future. For instance, during 2020, only 10.9% of revenue was generated from within the international market, which itself was down from 2019’s figures of 16.7%.
One difficultly here are the high import tariffs that various jurisdictions levied on Chinese e-scooter products. EU tariffs alone can be anywhere as high as 80%, while the US has typically imposed a tariff of 25% since 2019.
The trend in declining sales noted above is even more worrying when you consider that revenue dropped with each subsequent quarter in 2020, from 28.9% in Q1, to 9.8% in Q2, and finally to 7.4% in Q3.
The company will need to arrest this pattern as soon as possible. The good news, however, is that favorable data disclosures suggests that this might already be happening, with Q4 sales volumes reported having grown year-over-year by 180% in the international sector.
3. Margins are dropping too
Net margins on Niu’s revenues are mirroring the same downward slide as its international sales, which is further compounded by the fact that they weren’t that high to begin with.
Adjusted year-to-date net margin fell from 9.2% in 2019 to 7.9% in 2020, while Q3 2020 margins dropped from 11.1% to 10.1% from the equivalent quarter in 2019.
Niu Has A Long List Of Competitors, Privately Backed
The electric vehicle market is one of the pre-eminent growth industries of the current era, so it’s not surprising to find that Niu faces a number of competitors within the local and ever-expanding Asian sector.
Fortunately, however, many of these companies, such as Gogoro and Terra Motors, are venture-backed entities, still raising money privately, and don’t benefit from the opportunities that a public company like Niu enjoys.
That said, Niu does face competition from larger enterprises such as Yedea, which claims a 25% market share compared to Niu’s more modest 2%. But Yedea might not be an immediate threat to Niu; its focus is more on the low-end of the market, and less on the high-end niche which Niu has successfully captured.
Established tech giants such as Uber (UBER) are also shaping up to move into the electric scooter space, as is evidenced by its acquisition of the ride-sharing micro-mobility company Bird.
But whether a diversified enterprise like Uber (UBER) or Lyft (LYFT) will eventually rival a pure play outfit like Niu remains to be seen, although the possibility should always be taken into account by potential investors.
Best Electric Scooter Stock To Buy?
The electric vehicle market is a long way off being fully matured yet, and the underlying fundamentals that will mould it are still not entirely known.
But Niu’s proven track record so far indicates that it is well positioned to be a major player in the industry whatever direction it goes. Year-on-year revenue increases are at a healthy level, and as a growth company it isn’t unreasonable to see these bettered over time.
And if Niu maintains its current price-to-sales ratio of 7-8x, and the electric vehicle market lives up to its hype, bullish investors can rest easy in the knowledge that its share price should keep on appreciating.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.