The blue wave in Georgia may have provided a boost for the EV sector, but so far it’s had a muted effect on Fisker (NYSE:FSR) shares. At $16 per share, FSR stock remains below highs set late last year, when the “Biden boost” helped give the “EV bubble” additional runway.
However, that doesn’t mean this is a “buy the dip” situation. Investors may not be “buying the rumor, buying more on the news” with Fisker like they are with Tesla (NASDAQ:TSLA) or Plug Power (NASDAQ:PLUG).
But, shares in this “EV underdog” remain richly priced.
The “payoff” for Fisker remains years off. Its flagship vehicle, the Ocean SUV, doesn’t come out until 2022. In the meantime, shares could still pull back in a big way. Namely, when (not if) the EV bubble pops.
However, there may be a silver lining. Reassessing its future, I’ve become more optimistic about its long-term prospects.
At today’s prices, risk/return isn’t in your favor. But, after this hot sector corrects/crashes, consider this one of the first names to buy on weakness.
FSR Stock and the EV Bubble
Trying to call a top is a fool’s errand. In hindsight, it’s easy to see when things peaked. But, as it happens, it’s a case of trying to “predict the unpredictable.” That being said, it’s inevitable that the recent turbo-charged enthusiasm for electric vehicle plays will eventually reverse course.
As our own Matt McCall discussed back in December, perhaps, it happens when investors realize not all EV stocks are going to be winners.
Or, it could happen whenever Tesla hits a near-term hiccup. The EV powerhouse seems unstoppable now, but, as bearish Seeking Alpha contributor Matt Stewart pointed out recently, possible European market share losses could bring the runaway rally in its stock to a screeching halt.
Yet, whatever causes it, a pop in the “EV bubble” will mean bad news in the near-term for FST stock. Given the company is still in its early stages, almost all of its $4.3 billion market capitalization is based upon general optimism for the electric vehicle space.
Without this enthusiasm, expect shares to fall back towards their 52-week lows (just under $9 per share). Or, perhaps even lower, as speculators, such as those in the Robinhood trading community, head fast towards the exits.
But, while Fisker is too risky to buy now, any sort of big pullback may be a great buying opportunity. While challenges remain, this “underdog” still has solid chances of achieving success in this fast-accelerating industry.
Why This EV ‘Also-Ran’ Could Prove Its Critics Wrong
Just before the new year, I graded 10 of the past year’s hottest SPACs, or special purpose acquisition companies. As you may know, this stock was previously known as Spartan Energy, a SPAC that acquired the formerly privately-held EV maker last October.
My grade for Fisker? I gave it a “C.” That is to say, not an indication it’s a stock to avoid, but hardly an endorsement to buy it, either. The rationale? Namely, the risk it fails to gain sufficient market share against established EV makers like Tesla.
However, thanks to its contract manufacturing partnership with Magna (NYSE:MGA), I gave it credit for pursuing an asset-light approach as it tries to scale up.
I am still bearish about FSR stock at today’s prices. But now, I am more bullish this EV underdog can prove its critics wrong, and become a major player in this emerging industry.
Along with my optimism that its partnership with Magna will be key to its success, there are two other factors that have me more optimistic about its chances.
First, deliveries may be years away, but the company has already received 10,000 orders for the Ocean SUV. That number represents just 5% of the volume Fisker projects will be sold in 2024, yet it could be a sign things are ramping up sooner than expected.
Second, the price may be right with the Fisker Ocean. As InvestorPlace’s Josh Enomoto wrote Dec 30, at an MSRP of $37,499, it’s priced to compete with offerings from Tesla and BMW (OTCMKTS:BMWYY) in the “mass affluent market.”
In short, it may not be the “next Tesla.” But, it’s premature to say it’ll suffer the same fate as Henrik Fisker’s first attempt to build an electric car company.
Wait for Weakness Before Buying
As discussed above, I’m taking a less bearish view on Fisker the company, but right now FSR stock price needs to pull back a bit before it looks like a worthwhile opportunity. Admittedly, I’m waiting for the other shoe to drop (EV correction/crash).
Biding your time may be the best way to approach Fisker stock. With its solid long-term prospects, consider this a buy when (not if) the bubble pops.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.