Nikola (NASDAQ:NKLA) is trying to rebuild its credibility with no real viable business plan that anyone can assess. As a result, NKLA stock is going to be in limbo for a good time. That will last at least until analysts can understand its electric and fuel cell vehicle manufacturing plan.
So it comes as a surprise to some that Wedbush recently upgraded its outlook on NKLA stock to “neutral” from “underperform.” They also raised their price target to $25 per share.
Wedbush Likes Nikola
The brokerage seems to think that most of the company’s “negative catalysts” have played out. They might be referring to the scathing Hindenburg Research report on NKLA stock on Sept. 10, 2020, and especially the since-departed CEO, Trevor Milton.
Since Sept. 8, NKLA stock has fallen from a peak of $50.05 to just $22.90, as of Feb. 9, 2021. Now the new CEO, Mark Russell, and the CFO, Kim Brady, seem to have gotten the company back on track, according to the Wedbush analyst.
This is despite General Motors (NYSE:GM) canceling its deal with Nikola and Republic Services canceling its purchase of up to 5,000 EV refuse trucks. And don’t even mention the canceling of the Badger EV pick-up.
The Wedbush analyst, Daniel Ives, believes Nikola’s “EV and hydrogen fuel cell ambitions are attainable in the semi-truck market.”
However, I have no idea how he can say this. The company has not put forward any sort of a business plan since the GM deal collapsed.
All we know is that Nikola has some cash, about $900 million or so. That depends on its cash burn rate.
And it’s building a plant in the desert, just south of Phoenix (where I live) near a city half-way to Tucson called Casa Grande, off interstate highway 10.
The company won’t give us any kind of update on its finances and its outlook until after the market closes on Feb. 25. Until then, unless an analyst somehow had special access to inside information, there is no way to assess its real business plan going forward.
That is why I am skeptical of the Wedbush report’s optimism. They could not have had any kind of information that others don’t have to come up with their “value proposition” analysis.
What to Do With Nikola Stock
In my last article on NKLA stock, I wrote that it is not worth more than its net-net value of $2.42 per share. I still cannot move away from that target price since there is nothing to change my mind.
For example, I have no way to assess how much their new plant in Casa Grande is going to cost. There is no information on how much cash will remain in Nikola after the plant is built.
There is no information on how many EVs the company plans on delivering from that plant, at least now that the GM deal is gone. Who are the major corporate clients?
There are so many questions that the company needs to answer, I suspect that most analysts are waiting on the sidelines now. But maybe some of them know that the company will likely have to raise more cash.
That could be one reason they are not as critical as they might otherwise be, all other things being equal. Except, of course, Wedbush.
I suspect that most investors will want to stay away from NKLA stock until they can get a level of conviction on its prospects. This might occur after the various presentations and conference call from its upcoming earnings announcements on Feb. 25.
Until then most investors, despite Wedbush’s recommendation, will likely keep their powder dry. There are much better EV plays in the market to focus on than Nikola.
On the date of publication, Mark R. Hake does not hold a long or short position in any of the stocks in this article.