A sudden wariness about speculative tech stocks – along with the disappointment of some investors in the number of orders for Nikola’s (NASDAQ:NKLA) upcoming truck — have caused Nikola stock to slide meaningfully in recent days. Selling by institutional investors who bought shares when the company was private likely also contributed to the slide.
The downturn is likely to continue for a while. However, given the company’s strong potential, I think that long-term, risk-tolerant investors should consider buying the shares if they fall another 30%-40%.
In recent days, many investors seem to have become alarmed about the high valuations of some tech stocks. Among the victims of this new-found caution is Tesla (NASDAQ:TSLA), which Nikola is clearly trying to emulate. The name “Nikola” kind of gives it away.
From their peak on Monday morning to Wednesday afternoon, Nikola’s shares fell 18%.
Meanwhile, disappointment about the number of deposits that Nikola has obtained for its upcoming Badger truck has likely weighed on its shares.
Specifically, Nikola CEO Trevor Milton reported that his company was receiving “about 1,500 deposits per day” for the Badger. But, as Barron’s noted in its July 6 article, “Tesla’s [competing] Cybertruck has taken in hundreds of thousands of reservations since it was introduced in late 2019.”
In a column published on July 6, I had warned that Nikola’s decision to accept deposits could hurt its stock price.
A Closer Look at Nikola Stock
As I also noted in my previous column, I wouldn’t bet on the Badger generating runaway sales for Nikola. But I’m much more upbeat on the company’s longer-term outlook in the commercial-truck market.
And I pointed out in my article on Plug Power (NASDAQ:PLUG) published on July 15, that “regulatory moves by California and Europe are going to lead to hydrogen-fueled trucks becoming much more widespread in those jurisdictions.”
I also reiterated my belief that “many companies will look to boost their environmental credentials by acquiring and using hydrogen trucks,” while “that trend is likely to accelerate as hydrogen and renewable energy become cheaper.”
Further, I agree with Milton’s contention that hydrogen-fueled trucks are far more suited to long-distance travel than battery-electric trucks.
Moreover, Nikola’s plan to build five hydrogen stations could prove to be quite profitable. That’s because, as more hydrogen-powered trucks from various companies hit the road, Nikola could make a great deal of money by selling fuel.
And importantly, Nikola has made some impressive deals that validate the company, its know-how, and its vehicles. For example, European vehicle-maker CNH Industrial (NYSE:CNHI) has invested $250 million in Nikola.
Further, European auto parts maker Bosch and Chinese solar energy company Hanwha have each invested “at least $10o million” and a cumulative $230 million in Nikola. Finally, as I’ve noted previously, Anheuser-Busch (NYSE:BUD) in 2018 “placed an order for up to 800 hydrogen-electric powered semi-trucks from Nikola.”
Nikola Has Further to Fall
Even if the aversion to growth stocks ends soon, Nikola stock is likely to retreat further. That’s because the number of shares of the company that are on the market has recently jumped by 52.5 million, or 14%. Those shares were acquired by institutional investors who bought them for $10 before Nikola went public.
And according to a Seeking Alpha columnist, many of those investors will also short NKLA stock, putting further pressure on the name. The writer added that he also expects the impending exercise of millions of Nikola’s warrants to pressure the shares.
And another Seeking Alpha columnist stated that most of these institutional investors have filed to sell all of their shares, while “selling shareholders want to unload over 20% of the company.”
The Bottom Line on NKLA Stock
The company’s longer-term outlook is bright. But longer-term investors will likely soon get a chance to buy the shares much more cheaply. I would advise such investors to wait for the stock to reach $30 before pulling the trigger. Those who currently own the shares should sell them now.
As of this writing, Larry Ramer owned shares of PLUG stock. Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among Larry’s highly successful, contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer.