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Rivian is not expected to make a full year profit for many years.
Alisha Jucevic/Bloomberg
All good things come to an end and Rivian can’t believe it winning streak end. More volatility may lie ahead, but for now investors can focus on the fundamentals.
Shares of
Rivian car
(ticker: RIVN) fell 2.6% on Tuesday to close at $24.85, while
And
increased by 0.7% and 0.6% respectively.
Entering Tuesday’s trading session, shares of Rivian rose for nine consecutive days. That’s a record for the company, which began publicly trading in November 2021, according to Dow Jones Market Data. The stock has rallied 90% during that time, which is also the best nine-day period for the stock ever.
Stocks started to rise in late June, but deliveries really pushed things up. Rivian, which produced 9,395 vehicles in the first quarter, announced second-quarter production of 13,992 pieces on July 3. Wall Street expects about 11,000. Shares rose about 17% in response.
Better manufacturing is the catalyst for analyst Wedbush Dan Ives to raise the target price for Rivian stock to $30 from $25 a few days later. His rating is Buy Rivian stock. Shares were up 14% that day.
When the price chain breaks, investors can think about what’s next. Earnings are coming and better-than-expected deliveries mean better-than-expected sales and smaller losses. Wall Street now predicts a loss of $1.43 per share from revenue of about $1 billion.
Rivian is not expected to make a full year profit for many years.
Tesla
(ticker: TSLA) didn’t generate a consistent profit and cash flow until it was producing cars at a rate of about 400,000 units per year.
A quarterly report could certainly be included in the Rivian stock price right now. Investors may want to see increased production guidance. Rivian currently projects production of 50,000 units by 2023. If the company only needs to repeat the Q2 numbers in the 3rd and 4th quarters, it will reach more than 51,000 units. Ultimately, the company’s factory in Normal, Ill., is expected to produce 150,000 units per year, so increasing production in Q3 and Q4 is a logical choice.
Will it be enough to boost the stock though? The stock is down about 86% from its all-time high close of $172.01 reached on November 16, 2021. Just looking at that shows investors can expect a lot. more likely to increase prices.
However, no one really expects the EV euphoria of 2021 to repeat. Today, Rivian’s value, including its cash balance, is about $23 billion. Wall Street’s average price target of about $24 a share suggests that analysts think the stock is reasonably priced.
But analysts are also valuing the stock at well above $100 shortly after its November 2021 IPO. Investors need a better way to value the stock.
At current prices, Rivian stock trades for about three times its estimated sales in 2024. Tesla stock trades for about eight times its estimated sales in 2024. No. there’s no reason why Rivian’s selling price multiple is equal to Tesla’s. Rivian has yet to generate free cash flow. Tesla is. But Tesla’s business is something Rivian investors can refer to when evaluating the EV startup.
If Rivian’s output continues to beat estimates and the company continues to perform, the stock will continue to rise, closing the valuation gap with Tesla. Ultimately, Rivian stock will be valued based on earnings and free cash flow, just like the stock of any other company. Those days are still a way down the road.
Write to Al Root at [email protected]
