It’s fair to say that few companies have generated more buzz and controversy in 2020 than electric truck start-up Nikola (NASDAQ:NKLA). One could even describe NKLA stock as a hot-button stock because it evokes strong emotions among traders and commentators.
As we focus on the price action of NKLA stock, we’ll discover a roller-coaster ride that might not have a happy ending for the bulls. Suffice it to say that cautious investors might want to sidestep-NKLA for a while.
Regarding the company, Nikola has been the subject of intense scrutiny since short-selling firm Hindenburg Research accused the company of perpetuating “an Ocean of Lies.”
At around the same time, Trevor Milton stepped down from his roles as executive chairman and board member at Nikola. Did that quell the controversy entirely? The answer is no, and a recent event demonstrates that investing in NKLA could still be a problematic proposition.
A Closer Look at NKLA Stock
Interestingly, it wasn’t always such a rough ride for NKLA stock. In fact, 2020 started off smoothly enough, with the share price maintaining a steady range between $10 and $11.
That sense of calm wouldn’t last, though, as NKLA stock rocketed up to a breathtaking 52-week high of $93.99 in June. At that time, the market was in a frenzy over electric vehicle stocks, so the speculation surrounding NKLA ran rampant.
By the end of September, NKLA stock had plummeted all the way down to the $18 level. It’s been a textbook lesson for folks who might be in the habit of chasing stocks after they’ve gone vertical.
The pain might not be over yet for the NKLA stock bulls. On the afternoon of Dec. 23, the shareholders found their holdings down more than 10% as NKLA traded at less than $14. What could have caused such a price decline?
A Big Order Gets Canceled
The price decline was definitely event-driven. And the event might be symbolic of the problems that Nikola’s been going through.
Reportedly, Nikola announced that it had discontinued a collaboration with waste management company Republic Services (NYSE:RSG). The purpose of the collaboration would have been to develop garbage trucks.
On Aug. 10, NKLA stock had gained 22% and reached $44.81 after Nikola announced that it had secured an order to manufacture at least 2,500 electric garbage trucks for Republic Services.
Now, however, Nikola was disappointing its stakeholders by announcing the cancellation of a 2,500-truck order from Republic Services. Here’s an official statement from the two companies:
“After considerable collaboration and review, both companies determined that the combination of the various new technologies and design concepts would result in longer than expected development time, and unexpected costs… As a result, the program is being terminated resulting in the cancellation of the previously announced vehicle order.”
Marking the Bear Case
We can debate all day long about whether the “longer than expected development time” and “unexpected costs” are the real reasons for the canceled order, or whether these are just excuses.
We might speculate about whether Republic Services really just wants to distance itself from a company that’s scandal-ridden and, in the eyes of some onlookers, toxic.
Either way, the cancellation of a big order is undoubtedly bad news for Nikola and its shareholders.
With that in mind, informed investors must consider where NKLA stock might go from here. We might consider the wide range offered by analysts at Evercore ISI, who provided a bull case scenario of $37 and a bear case of $10.
The size of that range tends to imply that no one really knows where NKLA stock is headed, but that it’s likely to make a big move. A “bear case” of $10 suggests that if NKLA falls, it could fall hard and fast.
The Bottom Line
Just when you thought that Nikola’s problems were in the rear-view mirror, more issues pop up. For NKLA stock, it’s a never-ending series of problems.
Whether you believe in the bull case or the bear case, please just be careful. Expect a bumpy ride in NKLA stock as the company is clearly a magnet for controversy.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.