Retail participation in today’s stock market is on the rise as low-cost trading platforms and lockdowns gave speculative, first-time traders more influence on the market. The often irrational trends that have emerged from this pattern have given investors reason to question whether these retail traders are inflating bubbles in certain corners of the stock market. Electric vehicle maker Nikola (NASDAQ:NKLA), is one such example. Nikola stock, along with a handful of other speculative EV stocks, appears to be caught up in a Robinhood-created bubble.
Low-cost trading platform Robinhood has become the iconic symbol for millennial investors. The platform offers no-fee trading and allows investors to buy slices of expensive companies’ shares. That has made investing more accessible to the masses, a positive outcome. But on the other hand, it has also encouraged risky, uninformed trading among many inexperienced investors and that has all the makings for a bubble.
Nikola Stock and the EV Bubble
According to Robinhood data, four of the platform’s 20 most popular stocks are electric vehicle makers. Chinese automaker Nio (NYSE:NIO) has claimed the number one spot, with Tesla (NASDAQ:TSLA) coming in at number two. Electric van maker Workhorse Group (NASDAQ:WKHS) is 15th and Nikola stock squeezed in at number 17.
On the surface, that’s not all that surprising. After all, electric vehicles have been a hot topic in recent years, and many believe they’re going to eventually take over our roads. What is shocking is the fact that many of the EV stocks investors are jumping into are highly speculative in nature— Nikola stock included.
While Tesla and its outspoken CEO Elon Musk certainly have their fair share of critics, there’s a case to be made for the future of TSLA stock. At very least, Tesla is an electric vehicle maker that’s able to turn a profit. At best, Tesla could come out as the winner not only in the EV space, but also as a leader in autonomous driving.
Speculation on EV Stocks Grows
It’s harder, though, to work out the sudden interest in Workhorse and Nikola. Both companies also offer a bull case. Aside from the positive momentum surrounding electric vehicles, Workhorse’s electric vans just passed important safety milestones and Nikola just received a huge upgrade from JPMorgan’s Paul Coster.
But both stocks are hugely speculative, and that’s why it’s hard to imagine that droves of amateur investors want to buy them.
In the JPMorgan note on Nikola, Coster pointed to the firm potentially finding a manufacturing partner and forward movement on its electric semi production. Both of which are worthwhile considerations. Coster even noted that Nikola is volatile and that both of those outcomes are still just ideas — management has yet to execute. Still, the stock rocketed to $56 per share, 20% above Corster’s price target.
Workhorse similarly is trading beyond its average analyst price target on little more than speculation and hype. Again, the firm has some things going for itself, but lacks any concrete proof that management will be able to execute.
The Bottom Line on the Bubble
To be sure, Nikola stock, and for that matter all of the other stocks mentioned in this article, have a bull case to consider. But with all of them would come the caveat, be prepared for volatility, and don’t jump in with both feet. Their rapid rise in popularity, especially among Robinhood traders, should raise a few eyebrows and convince long-term investors to proceed with caution.
Laura Hoy has a finance degree from Duquesne University and has been writing about financial markets for the past eight years. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN. As of this writing, she did not hold a position in any of the aforementioned securities.