When clean energy and electric vehicle stocks soared to new highs, it lifted auto manufacturer firm Fisker (NYSE:FSR) too. Fisker stock peaked at $23.63 intra-day only to erase most of those gains last week.
How did the EV rally in the last month have anything to do with this company?
Profit-Taking Sinks Fisker Stock
The brief rise and spectacular fall in EV stocks encouraged speculators to seek value in related sectors. This included auto manufacturers. But if beat-up car makers like General Motors (NYSE:GM) do not enjoy the same valuations as Tesla (NASDAQ:TSLA), the rally in Fisker made little sense.
Fisker did not produce a car in two years. Still, it describes itself as “revolutionizing the automotive industry by developing the emotionally desirable and eco-friendly electric vehicles on EV.” On Sept. 24, it announced a new technology center in San Francisco. It will use the facility as the focal point and development center for software and vehicle electronics development.
The catchy words and promises will only distract investors. The company is effectively forecasting sports utility vehicle production starting in Q4, 2022. Anything may happen in that time. The Fisker Ocean SUV will face plenty of competition by then.
For example, Tesla already established itself in the SUV EV space with its Model Y. Other manufacturers are solidifying its market share, too. Nio (NASDAQ:NIO) has an ES8 model, which is a 7-seater SUV exclusively for the China market.
Fisker Not a Software Company
Markets treat Tesla as a software company instead of an EV supplier. Similarly, Nio trades at rich valuations because of its self-driving software in development. Nio has yet to turn a profit. The difference is that Nio has an EV product on the market.
Fisker has plants to produce four EV models by 2025. In July, the company said it had a mere 7,062 pre-orders and more than 30,000 expressions of interest. As a forward-pricing machine, the stock market is extrapolating on the potential future sales. Assuming Fisker attracts at least 30,000 pre-orders and delivers several EVs within five years, then the stock should trend higher.
Investors who only looked at Tesla’s quarterly losses and heavy debt in the last decade missed out on an incredible opportunity. They do not want to miss out on the potential return from holding shares of Fisker.
Risks
Nikola’s (NASDAQ:NKLA) greatly diminished deal with GM is a red flag for EV and clean energy investors. In the summer, GM did not know that Nikola Badger was merely a prototype. It announced a multi-billion investment deal that sent Nikola stock to a $93.99 high. By the time the fraud accusations surfaced, GM stayed quiet. It revised its earlier agreement with Nikola and will only supply the fuel cells.
Fisker is not a fraud but the same risks exist. If its partners are slow to deliver on the agreed-upon contract, then delays in Fisker’s EV ambitions will hurt the stock. On Dec. 1, the company filed with the Securities and Exchange Commission to sell up to 27.8 million shares. The offering will see up to 9.36 million Class A shares issuable alongside the IPO of Spartan Energy Acquisition. The exercise price is $11.50, with up to 18.4 million shares issuable upon the exercise of 18.4 million warrants.
Your Takeaway
Only two analysts offer a price target on Fisker. The average price target is $24 (according to Tipranks). Investors should treat the price target with skepticism. It is impossible to assess the company’s value at this time. If buying momentum continues to fade, then Fisker will keep falling, potentially re-testing $9 to $12 recent lows.
Speculators looking to profit from the wild volatility may take a position now. As sentiment shifts from negative to positive, the stock could soar. The continued interest in EV stocks, led by Tesla’s inclusion in the S&P 500, might give Fisker one last bump to the yearly high.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.
