Nikola (NASDAQ: NKLA) has made a name for itself by trying to be Tesla's (NASDAQ: TSLA) nemesis. It's gone so far as to complete the bridge in naming; Tesla was the last name of famed Serbian-American engineer Nikola Tesla, so along comes Nikola to be its biggest competitor. Now, however, Nikola may be discovering the consequences of growing too far too fast, as a recent stock warrant arrives and the market responds with frantic selling.
A Reach Exceeding Its Grasp?
Nikola recently rolled out some new moves that likely left the market unsettled; it filed an offering that would let it sell 23.9 million shares of its common stock, and that, periodically, current shareholders may sell up to 53.4 million shares as well. With the possibility of such sales occurring, it has the potential to put a lot of new shares on the market, and potentially render currently-held shares substantially less valuable.
That was enough for Deutsche Bank to point out that this kind of selling pressure might lead to quite a bit of actual selling, as early investors decided to take profits and abandon long-term positions. However, Deutsche Bank also pointed out that there was a critical advantage to this stock; it's one of only a handful of ways for investors to get in on a “pure-play electric vehicle company.” Aside from perceived nemesis Tesla, it's one of only a handful of games in town. Yet it's still a mixed picture there, as the company's coverage of the stock has opened at “hold”.
Additionally, the short-term selling that follows such moves might well drop its price down sufficient to where a second wave of investors could step in. Given that, at last report, you could buy about 30 shares of Nikola for every one share of Tesla, the idea that Nikola's upward trend may only be just beginning while Tesla's has reached the summit isn't really out of line. This is a point held at JPMorgan, where Nikola was recently upgraded from “hold” to “buy”, with a $45 price target, a fairly decent premium over current levels.
Nikola has Some Very Potent Possibilities
While Nikola's stock price seems to be drawing most of the attention, there's plenty going on to back the company up that's a little less noticeable. For instance, Nikola is poised to start construction on its first factory on July 23, a significant development for any new company.
Additionally, Nikola has plans to not only set up a partnership arrangement to begin production on its Badger line of electric pickup trucks, but also launch a string of hydrogen charging stations at locations throughout the UK. It's also set to roll out the FCEL truck in the US, and is stepping up its plans to do so even faster than it's currently on track to do.
Naturally, capital will be required to make such roll-outs happen, and about the only way Nikola really has to raise that capital is with its stock. That's likely why there's so much movement to sell stock, so that it can get sufficient cash behind it to start firing up all these projects properly. The line is still much too new to depend on self-sustaining sales projects, so cash flow has to come from somewhere.
Betting on the Future
The problem with such a move is that, in so doing, Nikola dilutes the value of its stock, selling off frantically in the hopes it can raise that capital needed to operate and make its stock that much more attractive in the future. As noted previously, this is one of the only ways to get in on an electric vehicle company that isn't doing several other things already, and that will make it attractive on a certain level to many investors.
If Nikola's ambitions don't come to fruition, though, it's just spent a whole lot of capital to go effectively nowhere. That's going to make the stock extremely unattractive going forward, and take down the value even farther. While Nikola does have several irons in the fire, and if one of these hits it could be big news, something will need to hit in order to keep the stock from tanking, and it's better if more than one something hits.
That fact more than anything makes Nikola at least worth hanging on to, and the current sales pressures are likely to open up a new buying opportunity later on. Buying immediately may not be a great idea, however, as better entry points are likely to follow over the next several days.
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