With shares falling far below recent highs, is it time to buy the dip in Nikola (NASDAQ:NKLA)? Not so fast! Sure, it’s future potential, not current valuation, driving names like Nikola stock. If the company can pull off bringing a hydrogen electric vehicle to market, it could give EV powerhouse Tesla (NASDAQ:TSLA) a run for its money. Not to mention disrupt the long-haul trucking industry.
Yet, talk is cheap. Results are what’s going to count over the long-run. The question is, when will Nikola talk turn into reality? This remains up for debate. On one hand, Analysts at JPMorgan and Cowen remain highly bullish on the company’s prospects.
On the other hand, the company’s recent conference call did little to instill confidence. Instead of announcing any game-changing updates regarding its prospective semi and passenger trucks, the company kept things close to the vest.
Those wearing rose colored glasses may see this as nothing to worry about. Building great things takes time, and that could be the case with Nikola. Yet, digging through the details, this company seems more like an “emperor has no clothes” situation rather than the next Tesla.
In short, ample reason why shares could head lower. But, going short could be risky, given how volatile “hot stocks” like this one have been this year. Simply put, it may be best to avoid both the long and short sides completely with this name.
Why Nikola Stock Could Fall Further
Right down to its name, this company seems to be following the playbook of its already-successful peer word-for-word. But, reverse-engineering Elon Musk’s success with Tesla doesn’t guarantee a slam dunk for this budding EV manufacturer.
How so? Firstly, while Tesla has done its share of over-promising, and under-delivering, this is greater of an issue with Nikola. As InvestorPlace’s Chris Lau wrote Aug 6, it’s been nothing but promises out of this company.
Whether it’s talk of “potential revenue” from pre-orders. Or, the company’s anticipated plans to build the world’s largest hydrogen network, it’s been all talk, and little action so far. Granted, this company is still in the development stages. It’s not really fair to compare it to Tesla’s current state.
Yet, that may be exactly the reason why shares aren’t a buy at today’s prices. As this commentator wrote, the company won’t see meaningful revenues until 2024. Meanwhile, it’s inevitable Nikola will have some hiccups along the way.
Said hiccups could mean near-term declines for the company’s shares. With this in mind, you may be better off waiting for shares to head lower before entering a long-term position. So, does that make this a great short? I wouldn’t go that far. Given much of the company’s negative factors could already be priced-in, it may be too late to go short.
Yet, Going Short May Not be The Best Move
For the most part, going short EV stocks has been a losing trade. Robinhood traders long Tesla, Nio (NYSE:NIO), and Plug Power (NASDAQ:PLUG) have laughed all the way to the bank. Short-sellers? They’ve been humbled by Mr. Market, as their bearish positions have produced nothing but heavy losses and regret.
Yet, it’s a different story with Nikola stock. Even as EV fever cools down, the aforementioned names have held on to most of their gains. On the other hand, this stock has seen a precipitous decline from its EV bubble highs.
However, the reasons behind this stock’s move lower may be prime reason why going short now isn’t a great idea. As InvestorPlace’s David Moadel wrote Aug 3, dilution from warrant vesting likely drove the recent decline. And, with this negative factor over-and-done with, shares may have nowhere to go but up.
That is to say, investors may have already priced in this and the other risks inherent with Nikola. In short, if the company winds up releasing positive news in the near-term, shares could easily rally back to prior price levels.
Even if Shares Have a Shot at Bouncing Back, Avoid Nikola Stock
At a time when markets remain hot for growth stocks at any price, it’s tough to make a call with Nikola. On one hand, the company’s hype, and lack of real results or progress, could be a sign that shares are headed lower in the near-term.
On the other hand, with so many negative factors already priced-in, shares may have nowhere to go but up. Even so, that doesn’t make this a solid opportunity. Buying this for reasons outside of fundamentals is speculating, not investing.
Bottom line: if you bought in at lower prices, it’s time to cash out of Nikola stock. Otherwise, avoid shares completely.
Thomas Niel, contributor to InvestorPlace, has written single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.