As someone who might live his entire days without ever buying an electric vehicle and not feeling the lesser for it, I in principle like the idea of RumbleON (NASDAQ:RMBL). Even the brand name for the omnichannel powersports platform evokes the visceral nature of its underlying products. Naturally, I was disappointed to find that RMBL stock isn’t quite living up to the billing.
On a year-to-date basis, RumbleON is one of the worrying companies in the market, stumbling to a loss of over 23%. To be fair, it’s only been three weeks and a day into the new year. Still, that’s a short time window to suffer such hefty declines. Although RMBL stock delivered sizable gains in 2021, the way it did so was incredibly choppy, fueling broader concerns.
Nevertheless, a case can be made that shares just need more time to adjust. For one thing, you have the Federal Reserve pivoting its monetary policy to a hawkish stance. Such an action would likely raise borrowing costs, which in turn hurts entrepreneurial demand for financing. And that leads to investors rotating out of risk-on assets — such as RMBL stock — and into safer fare.
Moreover, as InvestorPlace contributor Joseph Nograles argued, following RumbleON’s acquisition of powersports dealer RideNow, RMBL commands greater growth potential. Prior to the acquisition, Nograles stated, RumbleON “was a technology company offering a used-vehicle marketplace.” With the merger, the company can now focus on powersports.
As well, the total addressable market is sizable. According to MarketResearchFuture.com, experts project the powersports market to reach a valuation of $24.20 billion by 2030, a compound annual growth rate (CAGR) of 5.65% between 2022 and 2030.
If so, shares could be quite a steal. However, the cautious approach may be the best one.
Powersports Market Could be Temporary for RMBL Stock
As you know, the coronavirus pandemic didn’t just present a health threat to society but also an economic danger. However, some sectors fortuitously saw a rise in relevance because of the crisis. In a somewhat roundabout way, Covid-19 was helpful for RMBL stock.
Initially, it wasn’t the case. Back when the virus first upturned the globe, RMBL risked falling into the abyss. But had you bought shares during the spring doldrums of 2020, you were well-rewarded with a 10X move or greater. As Nograles mentioned, assuming “management can hit its growth projections, RMBL stock could see as much as 10x upside from current prices.”
Given that shares once commanded a triple-digit price tag, it’s not completely out of the question for such a forecast to materialize. Further, the pandemic inspired many people to hit the open road, presenting a socially distanced experience.
But with all due respect to my colleague and to those who are bullish on RMBL stock, I see it risking a “slash-two” type of investment; that is to say, take the current price and divide it by two.
How can I possibly think of such a pessimistic target? Well, I have doubts about the powersports argument and how sticky the Covid-19 -fueled argument really is. Before and even during the crisis, broader data suggested that Americans’ interest toward two-wheeling fun had been declining. Heck, there were even articles about millennials killing motorcycles.
Now, a paradigm-shifting pandemic will fundamentally change this trend? Again, it’s possible but I highly doubt it. I mean, a 2013 YouGov survey revealed that a surprising 5.8% of respondents didn’t even know how to ride a bicycle. Thus, the pivot to powersports seems unrealistic.
That being the case, I see a return to just-before-the-pandemic prices, which was around $16 or so.
Another issue I would have about taking a strong long-side position in RMBL stock is the broader youth culture. Time and again, we hear that millennials and generation Z care more about sustainability than prior generations. Many of them put their money where their mouth is through purchases of EVs.
This could just be me but I have a hard time believing that someone advocating for EVs will then turn around and buy obnoxiously loud motorcycles. It’s an anecdotal observation but typically, riders tend to follow a certain ethos, an ethos that’s increasingly going out of fashion.
Thus, while I appreciate the new-normal-related arguments favoring RMBL stock, I’m going to stick with the fundamentals. Motorcycles and similar powersports vehicles have been declining in demand for years. I don’t think the pandemic is what will shift this narrative into the positive direction.
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.