Fisker (NYSE:FSR) stock has had an interesting year thus far, one with plenty of peaks and valleys, and it doesn’t look like anything will change soon.
Most recently, the stock fell after the electric-car startup reported a wider quarterly loss last week.
In addition, the company forecasted a rise in expenses and kept its capital spending forecast largely unchanged for the full year.
Fisker plans to unveil its first model next year. It already has more than 16,000 reservations for its vehicles as of Monday. The 2022 Fisker Oceanis a five-plus-seat electric crossover touted as the “world’s most sustainable vehicle,” with production slated for the end of 2022.
Until then, investors should not expect a lot of top-line growth. In the first quarter, the company reported $22,000 in sales, mostly from promotional merchandise such as branded baseball caps, T-shirts and water bottles. The situation will not change anytime soon, considering the production timeline.
Yet, the larger issue remains. Is it appropriate to invest in FSR stock now that shares have shed significant value? On that end, for me, it is a resounding yes.
There are plenty of short-term catalysts on the horizon. If you are a passive investor, a growth story clearly sets it apart from several also-rans in the EV space.
FSR Stock: Attractively Valued After Sell-Off
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In the last three months, FSR stock is down 31%. That should not come off as surprising since most EVs are cooling off as investors start to refocus on traditional investment areas.
Besides, there is a lot of speculation built into EV valuations.
Investors who bought FSR stock at the time of its SPAC merger know a thing or two about wild price swings by this stage, but if you have remained steadfast for so long, there is no need to sell now that shares have lost so much steam. From here, they can only go up since major short-term catalysts like delivery reports and the Ocean debuting are around the corner.
Once the stock has remade lost ground, you can decide whether to part with your investment. I find the company and its operations fascinating.
Rather than focusing on in-house production, Fisker operates as a pure design, engineering and marketing firm, outsourcing vehicle manufacturing to partners like Canadian auto-supplier Magna International (NYSE:MGA) and Foxconn, the famous Taiwanese company that assembles iPhones.
Through outsourcing the production, CEO and founder Henrik Fisker can do what he does best, design great-looking cars. My colleague Ian Bezek touched upon this in his piece on the EV startup. On a side note, I had almost forgotten how cool the BMW Z8 roadster looked in the 1999 James Bond film The World Is Not Enough.
Coming back to the business model, the asset-light strategy will also help in margin growth and allow Fisker to invest more in operations. Most EV companies aren’t profitable, so you have little to rely on besides the story. Luckily for Fisker, they have one that investors can latch on to.
Chink in the Armor?
While we have spent time talking about the merits of the company’s business model, it’s also fair to point out some flaws.
Some criticize that outsourcing production will lead to a lack of institutional knowledge. Plus, what will happen if Fisker wants to change course and use some other manufacturer? The contract could prove too rigid to accommodate change.
I do not disagree with some of these arguments. After all, Tesla designs and manufactures EVs and EV powertrain components in-house. That makes sure there is no loss of institutional knowledge. Unfortunately, the same cannot be said for companies like Fisker that have decided to concentrate on one end of the process.
But what other option does Fisker have, really? He wants to manage a lean operation in a very competitive industry and focus on what he does best.
Risk-Return Trade-Off Is Attractive
I understand investors are pricing in some bullish sentiment into FSR stock, but this is the EV industry we are talking about. There is no way these securities are trading on fundamentals.
However, there are important things you need to keep in mind. Fisker’s Ocean SUV model is attractively priced at under $30,000, after U.S. federal tax credits. At the helm, you have a management team with a lot of experience and a designer that is known for iconic auto vehicles. Plus, cash on hand of $985 million doesn’t hurt.
With shares down substantially from their 52-week high, it’s the ideal time to take advantage of the opportunity to ‘buy the dip,’ since the company has more things for it than against.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.
