Wait for the EV Trend to Fizzle Out Before Buying Rivian

In hindsight, the Rivian (NASDAQ:RIVN) initial public offering (IPO) appears well-timed. Debuting in the public markets just shortly after the U.S. infrastructure bill renewed interest in electric vehicle (EV) plays, so RIVN stock had a lot on its side right out of the gate.

RIVN stock
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Atop pent-up excitement for the EV startup, which counts Amazon (NASDAQ:AMZN) and Ford (NYSE:F) as backers, it makes sense why it rocketed from its IPO price of $78 per share to a high of $179.47. Since then, it has fallen to approximately $115 per share.

But if you didn’t buy it when it began trading on Nov. 10, should you chase it now? Not so fast. Yes, time and again, skeptics of EV stocks have been proven wrong. Tesla (NASDAQ:TSLA) critics had to eat humble pie in 2020. Even doubters of Lucid Group (NASDAQ:LCID) were wrong in the end, as the luxury EV maker is making progress at a break-neck pace.

However, while this EV startup focused on the mass market has a shot of becoming a major automaker, that alone doesn’t make RIVN stock a buy. The stock has dropped since the excitement surrounding its IPO faded, and it could do so again once the current EV stock frenzy is over. Therefore, it’s best to take your time with Rivian.

RIVN Stock at a Glance

Rivian may be the latest EV company to go public, but it’s not exactly a new kid on the block. Founded in 2009 by CEO RJ Scaringe, it took the company nearly a decade to really start getting off the ground.

The startup began by purchasing a former Mitsubishi (OTCMKTS:MMTOF) plant in Normal, Illinois in 2017 and obtaining investments from Amazon and Ford in 2019. Rivian then raised billions more from T. Rowe Price (NASDAQ:TROW) and other institutional investors. In total, it raised $10.5 billion in private funding rounds.

Following the RIVN stock IPO, Scaringe’s venture now adds another $12 billion to its coffers. That’s leaps and bounds above the $4.8 billion Lucid has in its war chest and the $16.1 billion in cash Tesla has on hand. However, a good chunk of this company’s $22.5 billion mountain of cash will be used to finance its scaling up.

Still in the pre-revenue stage, Rivian is years away from generating the revenue and/or earnings needed to justify its valuation of nearly $100 billion. So, why are investors so excited about this particular venture?

The answer is simple. If Lucid, going after just the luxury market, is worth $90 billion to Mr. Market today, presumably a company going after the mass market deserves a higher valuation.

Looking at the details, though, it makes little sense to assign it this value. This may not stop Rivian shares from charging higher right now. But in time, both sector-specific and company-specific hype could again fade, pushing shares lower.

What Could Cause Rivian’s Price to Drop Again

RIVN stock may be sticking to levels around $115. Yet the main drivers of its recent rise were short-term in nature. Its shares got a boost from both the renewed hype surrounding EV stocks and excitement specifically about this company.

It’s unclear how long this latest wave of buzz around EV stocks will last. But at some point, investors will take a breather. That happened earlier this year after EV plays made “to the moon” moves in response to now-President Joe Biden’s victory in the 2020 election.

Once the market realized that mass adoption remained years away despite his generally pro-EV agenda, electric vehicle plays moved lower. The same thing could happen in the coming weeks or months as investors again realize, even with the infrastructure bill, electric cars and trucks are years away from hitting critical mass.

As for the company-specific buzz? One one hand, it may seem like Rivian is another Lucid in the making. Only this time, it’s going after a much larger market. On the other hand, it may be harder to rationalize a high upfront valuation for this stock as seen with LCID stock.

It was a stretch to justify the company’s $80 billion valuation right before its IPO. In theory, to be worth that amount, it would need to be selling 500,000 vehicles a year by 2025. At nearly $100 billion, it’s even harder to rationalize.

Rivian also faces other hurdles, like the fact that the “old school” car-makers are making moves into the EV market. Getting to six-digit delivery numbers in such a short span of time could be easier said than done.

The Verdict on RIVN Stock After Its IPO

Rivian could ultimately prove its skeptics wrong. But that doesn’t mean you should make this stock a buy at any price. The latest wave of EV trading is at high risk of dissipating, as it did in previous waves. In addition, the rich valuation assigned to it might not be as sustainable as the rich valuation currently given to Lucid.

So, what’s your best move with RIVN stock after its incredible run-up post-IPO? Wait for a pullback, and then reassess the situation.

On the date of publication, Thomas Niel 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.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.


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