After General Motors (NYSE:GM) scaled down its partnership with Nikola (NASDAQ:NKLA) due to the controversy that hurt the latter automaker, Nikola has lost a bit of its credibility. Nonetheless, the longer-term outlook of NKLA stock is positive at this point.
There are multiple reasons behind my bullishness on the shares. First, as I’ve pointed out in prior columns, the outlook of the company’s core market remains positive. Meanwhile, Nikola continues to have very strong partnerships and there have been no indications that its completed vehicles are problematic in any way.
Further, NKLA stock has gotten much cheaper in the past several months.
A Positive Core Market and Strong Partnerships
Nikola’s core market is trucks powered by hydrogen fuel cells. With many, if not most, companies in the West looking to become more green and the limits of battery-electric trucks, Nikola’s core market is poised to grow rapidly.
As I noted in my previous column on NKLA stock, the Street appears to have gotten much more upbeat on hydrogen in recent months, making me more bullish on the sector in general and the company’s shares in particular.
Meanwhile, in my June 10 column on Nikola, I reported that Nikola had established partnerships with multiple, large, reputable companies in the trucking sector, including “parts maker Wabco, which was recently acquired by giant German auto parts maker ZF; prominent truck leasing company Ryder (NYSE:R) and Bosch, another large vehicle parts maker.”
And although General Motors abandoned its plan to buy NKLA stock and manufacture its Badger pickup (which Nikola consequently abandoned), GM has still agreed to supply its fuel cells to Nikola.
These partnerships are important not only because they will improve the quality of Nikola’s vehicles and increase potential buyers’ confidence in them, but because the deals suggest that Nikola’s partners have a degree of faith in the automaker.
After all, even though the company’s partners are likely making money from the deals, they still have to spend time and funds on developing the alliances. As a result, I’m sure that they would rather partner with a hydrogen truck maker that looks poised to thrive and grow than one that will go out of business relatively quickly.
Therefore, I believe that these companies’ decision to partner with Nikola is a favorable sign for NKLA stock.
No Indications of Problems With Its Products
Nikola famously got in trouble for making a demonstration vehicle look like it was running on its own power when it wasn’t. And short seller Hindenburg accused the company of lying about other matters. But when it comes to vehicles that it’s made for customers’ use, there have been, as far as I can determine, no signs or allegations of serious problems.
So, yes, Nikola lied at least once, but as I pointed out previously, Tesla (NASDAQ:TSLA) CEO Elon Musk has told at least one major fib. And no one can complain about the performance of Tesla stock. But importantly, nobody, to my knowledge, has identified serious issues with Nikola’s vehicles that are supposed to be used by its customers.
Valuation and the Bottom Line on NKLA Stock
After the shares’ slides over the last few months and in the wake of their Dec. 3 lockup expiration, they have a market capitalization of about $7 billion. Given all of Nikola’s positive catalysts, that’s actually a pretty good deal. (Take a look at, for example, Fisker (NYSE:FSR), which has many fewer positive catalysts and much more competition, yet has a market capitalization of $4.67 billion.)
As a result, I recommend that longer-term, risk-tolerant investors buy the shares at this point.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.