Rivian Stock May Have Bottomed Out but It’s Still Not a Bargain

Rivian Automotive (NASDAQ:RIVN), the electric truck maker, went public in November 2021 at $78 per share, but as of Jan. 11, it closed at $83.55. This was after it shot up to a peak of $172 on Nov. 16. But RIVN stock has tumbled $88.45 or 51.4% to its present price since then.

A Rivian (RIVN) sign out front of an Illinois manufacturing plant.
Source: James Yarbrough / Shutterstock.com

Analysts are waiting to see how well its operation progressed during the quarter. After all, Rivian still has a market capitalization of over $73.8 billion.

But this puts it in the same league as General Motors (NYSE:GM) which now has a market value of $89.2 billion. This is only slightly higher than Rivian’s 74 billion market value.

Where Things Stand With Rivian

Obviously, GM is a much larger company in terms of sales. Analysts expect to make $127.6 billion in sales in 2021, according to Yahoo Finance.

But analysts foresee just Rivian making just $3.45 billion in 2022 sales at best, according to Seeking Alpha’s survey of 14 analysts. That’s a far cry from GM’s $127.6 billion, and estimates of $152 billion for 2022.

Of course, Rivian’s market cap is nowhere near that of Tesla (NASDAQ:TSLA), which has a market value of $1,105 billion. Tesla is expected to rollout its Cybertruck production and deliveries late in 2022, but it already has SUVs (Model Y).

Rivian produced its third-quarter results for the quarter ending Sept. 30 very late on Dec. 13. Its shareholder letter showed that revenue for the quarter was non-existent, as the company did not receive its initial public offering (IPO) cash until mid-November 2021.

Rivian raised $19.9 billion in cash in the IPO, including $1.2 billion in senior secured debt. That gives it net cash of $18.7 billion before expenses and costs during the fourth quarter.

Rivian Is Still Ramping Up

So, for all intents and purposes, the company is in ramp-up mode. Analysts expect revenue and deliveries for the fourth quarter will be minimal at just $60.79 million, according to a survey by Seeking Alpha.

It will actually be more important for analysts to be able to gauge the company’s own forecasts for sales for 2022 in the next earnings release. I would not expect these figures will come out until late February or March. Rivian has not yet said when it will release the Q4 numbers.

More importantly, it will be important, as I explained in my last article, to watch its cash burn (i.e., negative free cash flow). Analysts want to see how it progresses during Q4 and also Q1 2022 to date. For example, during Q3, the company burnt through $1.154 billion in negative free cash flow.

What the Future Holds for RIVN Stock

It will be important to see Rivian’s full quarterly production costs. Also important will be its final balance sheet at the end of Q4. This will help us determine how fast the company is burning through its cash and how quickly to expect the balance to fall.

Nevertheless, RIVN stock seems to be falling to the point where it has a semi-realistic valuation. In fact, I would not be surprised to see the stock start to move higher from here, especially if its production and delivery forecast is positive.

The problem is it could take a long time before the company becomes cash flow positive. It took Tesla several years after it started to ramp up production before it was producing positive free cash flow. The same thing could easily occur with Rivian and this might make the stock quite volatile until then.

What To Do With RIVN Stock Now

Right now RIVN stock seems to have found a trough point. Without any major disruption or production disaster, it could produce higher deliveries, sales, and eventually positive free cash flow. The market knows this and is obviously willing to give it a lot of slack. This is seen from its huge valuation right now.

Therefore, the market is forward-thinking about this stock. Any good news in terms of its ramp-up schedule could translate into higher prices for RIVN stock.

As a result, it might make sense to begin accumulating RIVN shares on any weakness now.

On the date of publication, Mark Hake did not hold (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.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.


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