Shares of Rivian (NASDAQ:RIVN) are down more than 9% today as both the S&P 500 and Nasdaq 100 are in the red. This comes after the Fed raised interest rates by 50 basis points (bps) yesterday, bringing the rate to between 0.75% and 1%. Indeed, the 50-bps raise was the largest increase in 22 years. Additionally, the Fed hinted at additional 50-bps raises in the coming months. On the bright side, the Fed did state that a 75-bps increase is not on the table.
RIVN stock is classified as a long-duration asset, since the basis of the company’s value lies in future cash flows. During Q4, the electric vehicle (EV) company reported $54 million in revenue, while Rivian’s current market capitalization is around $28 billion. As of this writing, it has an exorbitant price-to-sales ratio of 442.
When interest rates rise, the value of Rivian’s future cash flows when discounted to the present value decrease. This is because the weighted average cost of capital (WACC) in the discounted cash-flow model increases in correlation with the interest rate. The WACC is placed in the denominator of the model, while cash flows are placed in the numerator of the model.
Shares of the EV company are down more than 65% year-to-date. However, there’s another catalyst on the horizon that may exacerbate Rivian’s decline this year.
RIVN Stock: IPO Lockup Date Falls on May 9
On May 9, early investors in Rivian will be able to sell their shares. May 9 marks 180 days after the company’s initial public offering (IPO) on Nov. 9 of last year. Indeed, 180 days after the IPO is the typical date in which early investors and insiders are eligible to sell their shares.
As a result, roughly 800 million shares will be affected by the IPO lockup expiration. That doesn’t mean that all 800 million shares will be sold. However, key focus should be placed on Amazon (NASDAQ:AMZN) and Ford (NYSE:F), as both companies have significant stakes. Amazon owns almost 160 million shares, while Ford owns about 100 million shares.
Still, there’s a silver lining attached to the IPO lockup expiration. Barron’s reports that short sellers often cover their positions following the expiration. Currently, Rivian has a short interest as a percentage of float of about 6%.
On the date of publication, Eddie Pan 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.
