Last week’s warning about Fisker (NYSE:FSR) may have given cautious investors one last chance to get out of the speculation. In the previous month, Fisker stock peaked at $23.63 on strong volume.
Now that the hot air is leaking, the auto manufacturer risks re-visiting yearly lows.
Crossing the moving average support levels will trigger a sell signal, too. Plus, the short interest of 9.42% gives bears an edge.
Sale Pressures Fisker Stock
On Dec. 1, Fisker filed a 28 million stock sale on behalf of holders. At first, the stock held the price level in the high teens. And even though it will not receive any proceeds from the offering, investors are nervous about the large transfer in ownership.
Investors who missed the chance to buy the stock at low prices and sell at the top do not have the advantage of hindsight 20/20 from this article. So, they must assess the long-term prospects of the company. For example, Fisker’s sustainable electric SUV has a long road ahead. Not only does the company need time to design the EV, but it also needs suppliers, getting recyclable material and strong demand from consumers.
Fisker gets to claim the title of first with the pre-order concept in 2009. So, if it booked 5,000 paid reservations and 25,000 soft orders from its app on a zero market budget, this leader may create tremendous returns for its investors.
Solid Supplier
Canada’s Magna International (NYSE:MGA) is a reliable builder for Fisker. Magna will supply the vehicle platform and will have the responsibility of building Fisker’s Ocean SUV. In exchange, Magna will take a stake in Fisker by buying up to 6% in the company, worth $3 billion. The arrangement strengthens the ties between the firms. It benefits Fisker as it shares the operational risks with the builder. Plus, it adds cash to Fisker’s balance sheet.
The Spartan Energy Acquisition Corp. merger was a rough one. In the summer, the stock fell by 20% when it failed to complete a deal with Volkswagen. The stalled deal will delay Fisker’s plan to use VW’s MEB electric-car platform. There is hope. This author pointed out that the company said repeatedly that even though an agreement was not reached, the company highlighted, VW’s role in the investor presentation.
Investors cannot deny that Fisker Ocean is an attractive, futuristic SUV that will appeal to customers. The $37,499 price tag is also at an excellent affordability level that should lift initial demand. When the tax credit of $7,500 is applied, the final price is $29,999. The government leadership change in the U.S. could change this credit amount. It may not continue, either. This would be a blow not only to Fisker but to all automobile companies selling EVs in the U.S.
About the Valuation
I am cautious about Fisker’s near-term trading risks but am optimistic that the stock will not fall by much. The estimate of fair value, according to simplywall.st, is more than 80% above its recent share price. The site estimates the stock is worth $124.55. This assumes that Fisker will face no production delays. It also models negative earnings in 2022 of -$132.75 million. This improves to over $1.81 billion in earnings by the fiscal year 2024.
Investors have lots of other companies to consider in the EV space. Tesla (NASDAQ:TSLA) is the best-known company in the world. Nio (NYSE:NIO) gets investor attention whenever it posts record deliveries each month.
Buying Fisker stock is highly risky in the near-term. Once the dust settles, investors may start a position at better prices. How big a position depends on the overall investor interest in EV and clean energy stocks. If demand for the sector weakens, then avoid investing in Fisker until all the selling pressure ends.
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.
