Investors looking for a potentially lucrative opportunity may be drawn to Rivian stock, given its recent IPO and buzz around the electric vehicle market. But while the stock may seem like a bargain, it’s important to remember that cash is still crucial in any investment decision. In this blog post, we’ll explore why Rivian stock is an affordable option, and why investors shouldn’t disregard the importance of having sufficient cash reserves. Our analysis will help you make an informed decision about whether investing in Rivian stock is right for you.
Rivian Automotive Inc (NASDAQ:RIVN)
The fact that shares in Rivian Automotive may be had for next to nothing is the most recent example—as if one were needed—that demonstrates how complicated the stock market can be.
On Tuesday, shares of the electric truck start-up company with the ticker symbol RIVN dropped for the fourth consecutive trading day, and those shares were expected to continue their downward trend when the market opened on Wednesday morning. Then there was the financial crisis, which had a negative impact on most stocks throughout the past week. The news reached the market on Monday that Rivian may terminate its exclusivity contract with Amazon.com (NASDAQ:AMZN), so enabling the automaker to sell electric vans to clients other than Amazon.com. This development sent the market into a tailspin.
Wednesday marked the fifth consecutive day in which investor interest in the electric truck start-up (NASDAQ:RIVN) was negative. Then there was the financial crisis, which had a negative impact on most stocks throughout the past week. The news reached the market on Monday that Rivian may terminate its exclusivity contract with Amazon.com (NASDAQ:AMZN), so enabling the automaker to sell electric vans to clients other than Amazon.com. This development sent the market into a tailspin.
The stock fell as a result of this news, despite the fact that having access to a greater number of clients could be seen as a plus.
Adam Jonas, an analyst at Morgan Stanley, stated on Tuesday that inefficiencies at Rivian are having a negative impact on the company’s profit margins.
According to what was said by Jonas, “When Tesla crossed the 50,000 unit milestone in 2015, it achieved a positive 21.3% gross margin (excluding regulatory credits).” “Rivian’s production goal for this year is 50,000 units, but we anticipate a negative gross margin of 68% due to the roughly twofold increase in [capital spending] and operating expenses.”
He is of the opinion that the vast majority of investors desire improved cost control. Jonas recommends purchasing shares of Rivian and has set a price objective of $26 for the stock.
Rivian stock dropped to a session low of $12.80 on Wednesday when both the S&P 500 (SPX –0.70%) and the Dow Jones Industrial Average (DJIA –0.87%) were experiencing losses. Shares ended the day down 1.4% at $13.03, which is an unusual price considering the total number of shares Rivian has issued. At the end of 2022, the business had approximately $12 billion in cash on its balance sheet, which equaled $13.03 per share.
Based on this hypothetical calculation, the shares are effective without cost; however, prospective buyers should keep in mind that Rivian does not generate positive free cash flow and is spending money to expand its business.
Yet, Lucid LCID -1.86% (NASDAQ:LCID) stock was selling at approximately $7 per share after taking into account cash on hand. This results in an enterprise value for Lucid of approximately $13 billion, which is essentially the same as the market capitalization plus debt, minus cash on hand. Rivian’s is relatively near to zero despite the fact that Rivian is really larger than Lucid, selling more automobiles and making more sales than Lucid.
It is anticipated that Rivian would deliver approximately 50,000 automobiles in the year 2023, which might result in revenues of $4.1 billion. Around 12,000 automobiles worth a combined $1.3 billion are anticipated to be delivered by Lucid.
The disparity in valuation that exists between the two electric vehicle start-ups is difficult to comprehend. Ben Rose, an analyst at Battle Road Research, was asked to explain it, and he responded by saying, “That’s an excellent question.”
He suggested a few different factors that could be the cause, but he noted that none of them are persuasive.
Secondly, despite the fact that the market may have a higher degree of confidence in Lucid’s market position, Rose is skeptical that Lucid will be able to meet the production level that it has projected for 2023. In addition to this, he stated that the demand for trucks, which is Rivian’s primary focus, is greater than the desire for the high-end luxury sedans that Lucid manufactures.
Second, according to Rose, Saudi investment funds, which own the majority of Lucid, have the ability to rescue the company in the event that it runs into financial difficulties. But, the corporation would almost certainly have to issue new stock in exchange for any capital infusion, which would reduce the value of the stocks that shareholders already possess.
Rivian shares have been assigned a Hold rating by Rose. He does not have a pricing goal in mind at this time.
Featured Image: Megapixl @ Michaelvi
