Last week Phoenix-based Nikola Motors (NASDAQ:NKLA) went public via a reverse merger and raised $700 million from three institutional investors. As of Friday, June 12, NKLA stock was valued at $23.1 billion at $64 per share. This is based on the company having 360.9 million shares outstanding.

Some may think that is too high a value. But I can piece together a scenario where this appears reasonable, if not slightly undervalued.

But first a note about its market capitalization. The company also has 23.9 million warrants outstanding. The interesting thing is that these warrants are “in the money.” They can be exercised at $11.50 per share. So, in effect, there are now 384.8 million shares on a diluted basis. This gives NKLA stock a fully diluted market value of $24.6 billion.

Those extra 23.9 million warrants, if exercised on a non-cashless basis, will give the company an additional $274.7 million. But that is not likely. What’s more likely is that the warrants will be exercised on a non-cash basis. This raises the number of shares outstanding by 4.3 million ($275 million divided by $64 per share) to 365.2 million shares. That gives Nikola a diluted market value of $23.4 billion.

Pre-Order Reservations and Nikola’s Market Value

The company claims it has received 14,000 preorder reservations for its Nikola Two FCEV trucks. The term “FCEV” stands for “Fuel Cell Electric Vehicles.” These are powered by hydrogen fuel. So, they are not strictly electric battery trucks like the Tesla (NASDAQ:TSLA) cars and trucks.

Here is how we can value those orders. Nikola says these reservations can be canceled at any time before they become actual orders. The company estimates that its sales or lease revenue would be $10 billion. So that works out to $714,000 per truck. That seems very high. Tesla says its base model semi-truck will cost $150,000.

So, let’s get real. Let’s say only one-third to one-half of those reservations turn into actual orders. And let’s assume that the price falls by half to $350,000. That means Nikola’s annual revenue could be $1.6 billion to $2.5 billion. By the way, this won’t happen until at least late 2022. And it is probably a stretch to say that this level of sales will be recurring.

Nevertheless, that implies that NKLA stock has a price-sales ratio of between 9.5 to 14.3 times revenue on a preorder reservation forward-looking basis.

Other Parts of the NKLA Stock Valuation

One day after the company went public and raised $700 million, Nikola announced it had put in an order for $30 million 85-megawatt alkaline electrolytes. These will support five of the world’s first 8-ton-per-day hydrogen fueling stations starting in Arizona and California. Nikola plans on becoming a major hydrogen gas distributor in the U.S.

I can’t figure out a way to value that network. The company plans on starting the station building in 2021 and have started up to 57 stations by the end of 2024. It will have completed 24 by then. Eventually, it plans on completing 700 stations in North America.

Let’s assume that by 2024, the 24 completed stations produce and sell 40,000 kilograms of hydrogen per day. Since hydrogen costs about $2.20 to $3 per kilogram, I will assume that the distribution profit will be at best 20% — or 50 cents to 60 cents per kilogram. That implies EBITDA contribution per year of $7.3 million to $8.7 million per station or between $175 million to $209 million per year for 24 stations by 2024.

I would value that at 5 to 7 times EBITDA, or $875 million to $1.5 billion. This accounts for about 5% or 6% of the stock’s present market value. At a higher ratio it could account for maybe 10% of the valuation.

Nikola’s Pick-Up Truck

Last week the company went into details with Yahoo! Finance about its plans for a pick-up truck called the Badger, which will be available in both EV and FCEV versions.

The company claims it will compete with Tesla’s Cybertruck. But it has not announced any pricing for the model, which will come out sometime in 2022. The company’s executive chairman, Trevor Milton, told the Wall Street Journal that it would also “take the throne from the Ford F-150.”

Based on a section on the company’s website, the Badger will have a 600-mile range — 300 miles from an EV battery, and 300 miles from a hydrogen fuel cell.

The company is not yet taking reservations on its site. It has also not announced any pricing options. By contrast, Tesla is said to have priced its Cybertruck at a base price of $39,000.

Let’s assume Nikola can generate orders and produce 50,000 of these trucks at a 10% margin on a $50,000 average price. That would provide $250 million in net revenue annually to the company.

Let’s get generous and say it produces 100,000 per year at $500 million net revenue. Valuing that portion of the company at 10 times revenue gives it a $5 billion valuation. This represents 21% of its $23.4 billion market value.

The Full Value for Nikola Motors

So the value of NKLA stock stacks up as follows: 10 times revenue for $2 billion annual sales or leases of its semi-trucks, plus $1.45 billion for its hydrogen stations, plus $5 billion at 10 times sales for its Badger pick-up trucks. That adds up to $26.45 billion. On a per-share basis, that works out to $72.43 per share.

Compare this to NKLA stock’s present price of $64 and its fully diluted market value of $23.4 billion. You can see that the stock is not necessarily unreasonably valued. Granted, there are a lot of factors that will affect whether the stock reaches the target production levels.

Here is another way to simply value the stock. In its May 8 prospectus, the company projects that its sales will be $3.2 billion and EBITDA will be $213 million by 2024. So at today’s market value, NKLA stock is trading for just 7.2 times its forward sales and 109 times its projected EBITDA.

The first ratio, 7.2 times sales, seems like a reasonable number, but the latter does not. However, I suspect that the EBITDA valuation may not include recent announcements and projections related to the Badger pick-up truck. That could lower the price-EBITDA ratio as well.

If you think these ratios represent a bargain element you are probably wrong. But, the stock does not necessarily seem completely unreasonable in terms of its long-term valuation.

As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. Mark Hake runs the Total Yield Value Guide which you can review here.