No Sales, No Earnings, No Reason to Buy Nikola

Will 2020 be known as the year of the electric truck craze? Sometimes it sure feels that way lately. Nikola (NASDAQ:NKLA) is riding this trend relentlessly, and Nikola stock traders have pushed the share price to wild heights in a very short time.

If you feel like you’re missing out on big-time gains, it’s natural to feel that way. And if you already made sizable profits in Nikola stock but want more, that’s also understandable. Still, rational traders must appraise a stock’s true worth in the present situation and at the current share price.

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Risk-tolerant traders might scoff at this approach. After all, it’s hard to argue with folks who’ve doubled or tripled their investment in a matter of weeks. This, though, leaves open the question of whether this price trajectory is sustainable. Even if we can’t reach a definitive answer, it’s a conversation worth having.

A Closer Look at Nikola Stock

The history of Nikola stock is brief yet fascinating. The shares were available to the public for trading on June 4, having gone public via a special acquisition company or SPAC (i.e., basically through a blank-check company) rather than the typical initial-public-offering route.

Nikola shares opened at $37.55 but soon pulled back to $33.97. Apparently, the trading community took a bit of time to warm up to the hot new electric-truck manufacturer. Soon enough, however, Nikola stock would be all the rage.

By June 9, a mere five days after Nikola stock went public, the bulls had pushed the shares up to the $80 level. Some retracement ensued, and by June 26 the stock was trading at around $63.

That’s a whole lot of price movement squeezed into a compressed time frame. Frankly, this stock almost defies analysis. Risk assessment is crucial here, as is being able to answer the question: Why am I buying this?

Disruption, or Exaggeration?

It seems like financial gurus everywhere want to call Nikola a disruptor. Yet, is the company really starting a revolution? Remember, Elon Musk unveiled Tesla’s (NASDAQ:TSLA) electric pickup truck back in November of 2019.

Elon’s flair for the dramatic is well-known and there was no shortage of fanfare surrounding Tesla’s electric truck. Nikola CEO Trevor Milton also has a penchant for drama, though reportedly it might be tinged with a proclivity for exaggeration.

Allegedly, during an event in 2016, Milton may have claimed that a prototype of a Nikola big-rig “fully functions and works.” Anonymous sources have reportedly denied that this prototype had the requisite fuel cell to render it operable.

Whether Milton’s credibility remains intact is anyone’s guess at this point. The CEO claims, “I never deceived anyone,” and we can leave it at that for now. The takeaway here is that investors should focus on confirmed facts instead of bombast when making trading decisions.

Mixed Signals

When a stock hasn’t been trading for very long and it’s hard to sort out the truth from the hype, making an informed assessment is challenging, to say the least. The fact that Nikola hasn’t yet posted any sales or earnings only adds to the pall of confusion.

A case in point would be the mixed bag of insights coming from analysts at J.P. Morgan. On one hand, they hopped on the omnipresent “disruption” bandwagon with a comment that Nikola is “poised to disrupt the transportation industry.”

To that they added that “Nikola’s market opportunity is immense.” Yet, they assigned Nikola stock a price target of $45. That’s significantly lower than the share price at the time they issued that forecast.

Additionally, the J.P. Morgan analysts deemed Nikola stock “fully valued.” That’s a fancy way of saying that it’s expensive at best and overpriced at worst.

It almost feels like the analysts and the pool of traders don’t know what to make of Nikola. Therefore, it’s probably best to wait on the sidelines until more clarity can be achieved, which will take some time.

The Bottom Line

The allure of a fast mover like Nikola stock is perfectly understandable, but investors should retain a sensible perspective amid the hype. Until we can all get a clearer demarcation between truth and fanfare, it’s fine to stay in the slow lane and avoid Nikola altogether.

As of this writing, David Moadel did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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