Growth Stocks: Rivian Automotive

Rivian Automotive, Inc. (RIVN.US) will announce its expected results for the last quarter of 2021 on March 10 while investors are pending and will analyze its vehicle production ramp. Rivian shares did not rise well in January when they hit an all-time low of $50 a share. While the company does not have a relevant trend history, it has rebounded from its lows and is still miles away from its November highs.

What is not surprising is the volatility experienced by RIVN shares. Until a new listed company finds its place in the market and investors learn more about its fundamentals. But even with this brief performance, we have to wonder if RIVN's stock has bottomed out. Unfortunately, no one in the market can predict the future.

Key RIVN Stock Metrics

RIVN performance vs. peers (koyfin)
 
Investors can draw the conclusion from the chart above that Rivian stock hasn't been the only one to take a hit since early 2022. Its competitors listed above, both pure electric, combustion and hybrid manufacturers, have also suffered declines. dramatic. However, the group's most speculative stocks, Lucid Group, Inc. (LCID.US) and RIVN, suffered the most. RIVN shares are down 36% year to date while LCID shares are down 30.1% in the same period.

RIVN Vs. peers 100% EV (TIKR)
 
Furthermore, we can also deduce from the chart above that shares of LCID and RIVN continue to value well above shares of electric vehicle leader Tesla (TSLA.US). The Twelve Month (NTM) Earnings Multiple for RIVN shares of 27.8x is lower than the 31.9x for LCID shares. However, both stocks are trading well above the 10.7x share of TSLA. Given the premium valuation of RIVN shares, investors should not be surprised by its volatility in January.
 
Why did Rivian stock fall in January?
 
The most apparent reason could be related to the sentiment in the markets today: excessive inflation. While not considered out of control, growth stocks have taken a hit since November. The Fed's stance to tighten monetary policy, coupled with quantitative tightening, has pushed growth investors to the brink. Additionally, many “pandemic winners” like Roku (ROKU), Netflix (NFLX), Peloton (PTON) have seen the market completely digest two years of spikes during the pandemic. Therefore, we believe that many investors have rushed out of growth stocks to secure their rapidly declining returns, without due consideration of their underlying long-term thesis. As a result, "sell first, ask questions later" behavior has recently dominated the growth stock market.
 
Given the premium valuation of RIVN stock, it is certainly a prime contender for such value compression. To be sure, Rivian is still in the infancy of its market opportunity, despite having an award-winning R1T truck, along with orders for 100,000 EDVs from Amazon (AMZN.US). It is still running into obstacles and learning how to generate economies of scale in manufacturing. While it has posted that it expects to produce 600,000 by 2024, it has yet to meet its third-quarter 2021 production target of 1,200 vehicles.

But the company has also shown its ability to increase production at the end of January. Bloomberg reported that it was "scaling production of its first electric vehicle to nearly 200 units ready for delivery a week after ironing out production issues, according to people familiar with the matter, gaining ground after falling short of its 2021 targets."
 
So it points to Rivian possibly meeting consensus estimates of around 40,000 vehicles by 2022 if it can keep up the momentum. However, it also notes that chip supply shortages could continue to wreak havoc on the auto supply chain throughout 2022. Additionally, given the outperforming RIVN stock valuation, weak hands in RIVN stock they might be tempted to close positions. Therefore, uncertainty has also been weighing on RIVN shares. Consequently, the upcoming earnings release will be key to how Rivian intends to manage the chip shortage.
 
Additionally, Ford Motor Company (F.US) CEO Jim Farley also reported that Ford is keeping all options "on the table," and that its stock lock-up period will end in mid-May. Ford has about 101.9 million shares worth $6.77 billion. It also translates to approximately 11.4% of Rivian's total outstanding shares. Although Ford has indicated that it has no plans to sell yet, Farley is not ruling out a possible sale when its lock-up period expires in less than three months. Notably, Ford also sees Rivian as a keen competitor, as both companies compete in the "same segment."
 
However, Farley still does not consider Rivian a direct competitor, as he believes that they currently serve different sub-segments. But it's almost impossible for their customer segments not to intersect at some point, and we think Ford will be a major competitor for Rivian's ambitions. Therefore, the possible sale of Ford's stake, coupled with Ford's significant ambitions to produce 600,000 electric vehicles in the next 22-24 months, may also have recently affected Rivian's investor confidence.
 
Consequently, the massive market opportunities underpinning the electric vehicle market are conducive to Rivian's stock over the long term.
 
Is RIVN Stock Buy, Sell, or Hold?

Market consensus for RIVN price target vs. stock performance (TIKR)
 
Investors can tell that RIVN shares are now trading below even the most pessimistic price targets. Which places its valuation at extreme oversold levels. However, everything will depend on your ability to successfully increase production.
 
Technical analysis
 
The company has been recovering levels from its "historic" lows. The development of an ascending channel is approaching its opening price in the financial markets and investors seem to be looking for at least that reference level.

source: xStation

Darío García, EFA
XTB Spain