Shares of Rivian (NASDAQ: RIVN) have certainly given investors plenty to think about in their first couple of weeks of public trading. If a 90% move higher and then a 40% drop in the weeks following an IPO don’t excite you, then investing in high-tech is probably not for you. But you’d like to think that investors who fancied the look of the Californian headquartered electric vehicle (EV) maker enough to get involved as they IPO’d last month knew what they were getting themselves into.
They IPO’d with much aplomb, as might be expected for a company going up against the likes of Tesla (NASDAQ: TSLA) and Nio (NYSE: NIO). In fact, it was reported that even with an initial IPO price of $75, and shares opened in fact at $105, Rivian had a higher market cap than the likes of Lululemon (NASDAQ: LULU) and FedEx (NYSE: FDX). Not bad for a company that’s still pre-revenue.
But such is the hype around the EV space that this kind of statistic is almost expected. Indeed, within a few days of the stock’s opening trade, the valuation on Rivian was higher than the market caps of Honda, Fisker, and Ferrari combined. This is an incredible statistic and one which understandably can cause a fair bit of alarm among those who don’t quite buy into the seemingly unending hype in the EV space. It has to be said, since the opening salvos that sent shares soaring to almost $180, those kinds of concerns have been well justified.
Equities, in general, have been taking a beating since the final week of November, and companies with lofty valuations, especially those that are pre-revenue, are always the hardest hit. A 45% drop from their highs through the end of last week put Rivian shares within a whisker of trading below their opening prices. But so far this week they’ve managed to catch a bid and were up again in Tuesday’s pre-market session. It looks like fresh bullish comments from many of the Wall Street heavyweights are helping to drive the longer term appeal of the stock.
Morgan Stanley, Bank of America, Piper Sandler, and Mizuho all came out with either Overweight or Buy ratings yesterday, with price targets of $147, $170, and $145 respectively. Considering Rivian closed out Monday’s session at $117, there’s a lot to like about the expected upside here which is in the region of 25-45%. Wedbush also came into the bull camp, with analyst Dan Ives noting how "with the popularity and consumer demand for EVs on the trucking/SUV market, we believe Rivian is in the catbird’s seat to take considerable market share in this EV arms race under its visionary CEO and founder RJ Scaringe. We believe Rivian is set to create a new category in the EV space with its game-changing debuts, a massive Normal, Illinois factory footprint, and create a major brand within the EV market over the next decade."
It has to be said though that at the same time there are those urging caution, with Wells Fargo, JPMorgan and Goldman Sachs all taking a slightly less optimistic stance with Neutral or Equal-weight ratings. Goldman Sachs analyst Mark Delaney has pointed out that “the automotive industry has been historically difficult for new entrants to scale, including in electric vehicles.” He also said that Rivian's vertical integration model is expensive as he projects about $20B of cash burn from through 2025, while at the same time Rivian is already trading at a sizable premium to the group median.
For those of us on the sidelines and considering getting involved, this is definitely one where the targeted reward has to justify the risk involved. There’s probably not much to be said for taking a short-term position as Rivian is susceptible to getting caught up in any additional volatility in equities, but the smart money seems to see plenty of potential in Rivian over the long term. If you’re happy to hold a position through what’s sure to be an oft-times bumpy ride, the rewards should be great in the years to come.
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