Lordstown Motors (NASDAQ:RIDE) started trading on Oct. 26 as a merged company with the SPAC (special purpose acquisition company) stock, DiamondPeak Holdings. RIDE stock is looking like a winner, as I pointed out in my last article, especially since it now has $675 million as a result of the merger.
Lordstown will use the $675 million to begin manufacturing its electric pickup truck, the Endurance. This will be the first EV pickup to hit the market. Lordstown will be using a fully equipped truck plant in Lordstown, Ohio, that it acquired from GM.
Forecasts Look Fantastic
The company says it has more than 40,000 pre-orders. It hopes to start delivering by mid-2021. It expects to post significant EBITDA (earnings before interest, taxes, depreciation, and amortization) by the end of 2024.
In its Sept. 17 virtual analyst presentation (p. 24), the EV maker estimated its future EBITDA profits at $298 million by 2023 and $600 million by 2024.
Therefore, it is selling fairly cheaply now. For example, since the company’s market capitalization is $2.99 billion, and it has $675 million in cash, its enterprise value (EV) is just $2.32 billion. That means its 2023 EV-to-EBITDA ratio is just 7.7 times and the 2024 multiple is 3.85 times.
Valuing Lordstown Using Its Own Forecasts
Projecting out revenue and EBITDA this far out in the future involves a good deal of risk. Normally we would discount the future EBITDA numbers to the present. As a result, the EV-to-EBITDA would be a bit higher and more expensive.
For example, at a 15% discount rate, its $600 million in EBITDA would be worth $343 million. That puts it on a present value EV-to-EBITDA ratio of 8.7x.
However, compared to its peers, as shown on page 29 of the slide presentation, the normal multiple should be between 11x and 44x. Even at 11x EV-to-EBITDA multiple, RIDE stock should have an EV of $3.773 billion. After adding back the $675 million in net cash, the market cap should be $4.45 billion.
Therefore, the potential gain in RIDE stock should be 48.7% higher. This is because $4.45 billion is 48.7% higher than the present market cap of $2.99 billion. This means that the value for RIDE stock is $26.61, or 48.7% above today’s price (Nov. 6) of $17.89.
What Analysts Say About RIDE Stock
Barron’s recently reported that EV stocks are trading “wildly,” coming up with a method for the madness, so-to-speak.
The article breaks down the EV industry into five sectors. The author argues that by taking the long-term view and “parsing” the EV sector, the values can be seen as worthwhile.
Another recent article in Seeking Alpha argues that shorting RIDE stock, despite its lack of actual finances, will be a “risky endeavor“. The author says he thinks RIDE stock will rise on bullish sentiment, but he does not give it a price target.
I suspect that now that the company has completed its reverse merger, more analysts will come out with opinions on RIDE stock.
What To Do With RIDE Stock
Now that the company has merged with DiamondPeak, the predecessor SPAC company, it will be reporting earnings as an operating company. So far the company has not said when it will release its third quarter earnings report, with the website only promising “coming soon.”
So, while outside analysts and I believe that RIDE stock is worth significantly more than its present price, most investors are looking for real results. I suspect that many are waiting for the company to put the $675 million it just received from the merger to good use.
Therefore, it is going to take several quarters before there will be a clearer line of sight when the company will start producing its Endurance pickup truck. When that comes into focus I believe RIDE stock will start to move up.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.