As the saying goes, the devil is in the details. But for EV upstart Nikola (NASDAQ:NKLA) following earnings, is that absence really a ‘lights out’ situation for Nikola stock investors? Let’s see what’s really happening under today’s hood and then offer a stronger, risk-adjusted approach to positioning based on that assessment.
The search for the next big technological breakthrough is always a popular one for investors. The reason is obvious: Life-changing gains for longer-term shareholders can be the reward. One needs look no further than Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), or Netflix (NASDAQ:NFLX). Those companies have changed the way we live, enabling investors to realize that truth.
Where is that next ground floor opportunity? Many investors the past couple months have set their sights on Nikola. But so far owning NKLA shares has proven both thrilling and chilling.
New to the market, Nikola is a special purpose acquisition company (SPAC) play. The company also has big-time dreams. Its aim is to go from the proverbial drawing board with exciting concepts, to becoming a bonafide EV big rig and pick-up truck manufacturer using hydrogen fuel-cell and battery-electric technologies.
It sounds good, right? But the combination of an unproven entity unafraid of PR and straddling two of the market’s hottest themes has produced one of the more hotly-debated and volatile battleground stocks for investors.
NKLA Stock History and Earnings
Since motoring onto the scene this summer, Nikola briefly saw its market capitalization surpass both Ford Motors (NYSE:F) and General Motors (NYSE:GM) while delivering triple digit gains in a matter of days. Nikola stock has also witnessed the ugly side of overly-excited price momentum and unrealistic expectations.
More recently and over the course of nearly two months, a high of $93.99 set in early June has worked its way into a painful correction of nearly 70% at last week’s relative low in Nikola shares.
The question now is with the stock’s bubble-like run-up dismantled and sporting a valuation half of Ford’s, are shares of Nikola finally a buy? For investors waiting for management to provide additional details on its business going forward, the company’s first earnings release as a publicly-traded company amounted to a car wreck.
Further specifics on production schedules for its Badger pick-up truck, a semi-truck that’s set to compete with Tesla’s (NASDAQ:TSLA) big rig ambitions, or new customer orders beyond its current single commitment from Anheuser Busch, were all but absent from the quarterly update.
The report’s failures were enough to leave a couple analysts confused, asking, “Is this all we get?” Not entirely.
For those seeking clarity, the only thing Nikola did produce was a larger and wider-than-forecast loss in preparation of becoming the next big thing. By the numbers, the company showed an adjusted Ebitda loss of $47 million, which grew more than three-fold from a year earlier. In tow, the cash burn amounted to a loss of 16 cents per share versus estimates of 13 cents for shareholders.
Nikola Stock Weekly Price Chart
Source: Charts by TradingView
Investors do have something else to base decisions off. Nikola’s price chart can be used for clues to future performance before information gleaned elsewhere is present. In fact, and not long ago I warned against owning Nikola’s frothy and technically risky shares. But a lot has happened since that time, including a big pay-off for a detailed bearish options play on the stock thanks to a very generous price correction.
Now though, I’m upbeat. Given the Nikola’s contentious report which left Wall Street miffed, but also price action that’s solidified a deep corrective bottom, a purchase is making increasing sense.
Technically and despite the iffy-sounding earnings release, investors have managed to hold Nikola stock above last week’s bottoming doji candlestick. More impressive, after a brief move into the candle’s body following the report, shares remain bid above the $35 signal price with additional support from an oversold stochastics setup.
Bottom-line, NKLA isn’t a stock to park in the account with long-haul intentions. But exposure to shares with capital allocated for riskier investments does look reasonable within this framework. Having said that, one favored limited and reduced risk to participating in this capacity is the October $40 / $50 bull call spread for $2.50 or less.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. Investment accounts under management do not currently own positions in any of the securities mentioned in this article. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
