June 8 saw zero-emission transportation start-up Nikola Motor Company (NASDAQ:NKLA) stock go up an eye-popping 103%. On June 9, Nikola stock is made another new high, going up close to 6.5%.
The recent surge in price followed a tweet by founder and chairman Trevor Milton. He used Twitter’s (NYSE:TWTR) platform to announce that the company would begin taking reservations for a new electric pickup truck, called the “Badger” in late June.
Now investors are wondering if the run-up in the share price can in fact continue in the coming months, too. So today I’ll take a look at whether long-term investors should buy into the hot NKLA stock in June or wait for a potential pullback.
Nikola Stock Began Trading in June
On June 4, Phoenix-based Nikola Motor went public via a special-purpose acquisition company (SPAC), instead of conventional IPO. It merged with VectoIQ Acquisition Corporation, a “blank check” publicly traded firm that was already listed on the NASDAQ. In general, these blank check companies look for a suitable business combination target for a potential reverse merger.
VectoIQ had been set up by former GM executives to focus on the smart transportation industry. As a result, one share of VTectoIQ stock converted into one share of NKLA stock.
By merging with a SPAC, a company can avoid going through various steps and hurdles to go public or sell new shares. Regular InvestorPlace readers may remember that Virgin Galactic (NYSE:SPCE) and DraftKings (NASDAQ:DKNG) have also gone public through a SPAC transaction.
Following the reverse merger agreed earlier in March 2020, Mr. Milton, who had founded the company in 2014, stayed on as chairman. On June 4, NKLA stock opened at $37.55. Its price increase since the announcement of the merger are mirroring the up moves the markets saw in SPCE and DKNG stocks.
Are investors now betting that NKLA stock will become the next Tesla (NASDAQ:TSLA) stock to hit new highs regularly? On a side note, on June 8, TSLA stock closed at a recent high price of $949.92.
Nikola Motor Specializes in Trucks
So far Nikola Motor has concentrated on heavy-duty fuel cell trucks. A March press release stated the group had “more than 14,000 pre-orders representing more than $10 billion in potential revenue and two-and-a-half years of production.”
Although management had in the past said an electric pickup, ie., Badger, was in the pipeline, until the latest announcement, investors did not think the company would be ready to take orders so soon.
Several specifications were announced in February. For example, the new truck will be offered in Fuel-Cell Electric (FCEV) or Battery-Electric (BEV). Nikola Motors has not yet announced how or where the truck will be manufactured.
Another reason investors in NKLA stock possibly got excited about Monday’s announcement is whether the truck could be a viable competition for Tesla’s Cybertruck which also gets a lot of attention. Indeed, Twitter has been abuzz with various comparison tweets between the two trucks.
Nikola Motor’s Badger is expected to make its first appearance at Nikola World 2020 in September. Between now and then investors will be keen to learn more about this new truck.
Yet, if you’re considering investing in NKLA stock for the long run, you may want to see how the next several quarterly reports may come out. With a newly-listed company, it is important to see the trend in its fundamental metrics. For example, management expects Nikola Motors to start generating revenue in 2021. It’d be important to see if that will indeed happen.
The Bottom Line on NKLA Stock
Going public through a SPAC merger is fast gaining popularity in the markets. And investors are not shy to bet on these companies as soon as a merger is announced.
There is initially a lot of hype surrounding these stocks as retail investors and day traders begin chasing them. Therefore long-term investors are urged to proceed with caution as volatility will likely become the name of the game in NKLA stock, too.
Investors are excited about a new manufacturer that has big plans on clean renewables. Are you one of those early investors who took a chance on the company’s stock? If you’ve been rewarded handsomely early on, then you may want to take some money off the table.
Alternatively, you may consider initiating an ATM covered call position. For example, a Sep 18 expiry covered call would decrease the volatility in your portfolio and offer some downside protection. It’d also enable you to participate in a potential up move.
Sine late March, optimistic investors have been providing endless bullish days for stocks. And a rising tide helps even the newcomers. Yet in case of a change in investor sentiment, profit-taking could easily hit NKLA stock.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.