Fisker Is Still Too Risky Without Positive Free Cash Flow

Fisker (NYSE:FSR) has made headlines in 2021. The electric vehicle (EV) company was swept up in the EV stock trend and saw both excitement and drama in the market this year. Considering its ups and downs, you may be wondering if FSR stock is worth a buy.

Mobile phone with company logo of US electric vehicle manufacturer Fisker Inc. on screen in front of webpage

Source: T. Schneider / Shutterstock.com

As a car enthusiast, I have a keen interest in everything related to the auto industry, from vehicles and the technology in them to the design process and sector trends. I am sad that internal combustion engines will soon come to an end. EVs may have the benefit of instant torque, but I’ll miss the exciting quirks and features of petrol engines.

Unfortunately, though, petrol fans like me need to get used to the idea that EVS are the future of mobility and transport. With that in mind, let’s take a closer look at Fisker.

Don’t Get Excited About FSR Stock Yet

Back in Feb. 2021, I wrote my first article on Fisker. I liked the business model, especially the lease-like subscription plan. However, I disliked its history of bankruptcy and its failed EV, Karma. I concluded FSR stock does not have a large enough financial history to be a buy.

 

I must say that some analysts are too bullish on FSR stock. The high estimated price is $40. When the price is $14.21, this estimate seems too bold considering Fisker is a pre-revenue company.

Analysts have two choices now. They can project tons of revenue in the future and be extremely optimistic, and therefore suggest a much higher stock price based on their forecasts. Alternatively, they can be more realistic and down to earth — conservative, even — and only analyze current financial data. I am in the latter category, and I cannot get excited about a company with zero revenue.

Why? It’s all about the basics of investing. It may sound boring, but stocks are valued based on their expected free cash flows. Right now, Fisker has zero positive free cash flow. In fact, it has reported negative free cash flow since 2018. It lost $3.5 million in 2018, $7.3 million in 2019 and more than $38 million in 2020.

Notice that its free cash flow has only gotten worse. Fisker has to spend more money as it expands. You do not have to be a financial analyst to understand that this indicates a negative value for FSR stock. Even a three-year growth average doesn’t bode well for the company.

But Wall Street tends to overestimate companies and neglect reality in favor of hot trends like EV stocks. In most cases, I think this is not logical. Analysts tend to promote stocks even if their fundamentals and valuation scream that they’re too expensive or risky.

Fisker and the Future of Electric Vehicles

CNBC’s interview with company CEO Henrik Fisker shows that the management team is fully aware of the risks and challenges in the EV industry. Fisker stated, “We need to continue with some good incentives for people to get converted over to electric cars and I actually think we could become one of the winners in that.” This is optimistic, but then again, management is rarely pessimistic.

Herein lies the real challenge for FSR stock. The company has to deliver results soon — not years later, when the EV industry will have clear winners and losers.

In conclusion, I believe it all comes down to what type of investor you are. If you are an investor that digs down to fundamentals, valuation and cold-but-real numbers, you will probably pass on Fisker. If you are a speculator and prefer a risky bet because it may pay off in the end, then you may think FSR stock is a bargain now.

Personally, I am in the first category, where real facts and numbers prevail. Six months since my first article, my original thesis remains intact: Don’t get excited about FSR stock yet.

On the date of publication, Stavros Georgiadis, CFA  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.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn


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