Rivian Automotive(NASDAQ: RIVN) has been a volatile stock since its initial public offering in 2021. But volatility can create incredible buying opportunities. After a recent correction, Rivian stock is now too cheap to ignore. And there is a great reason to buy before the end of the month. Let’s dive in, and I’ll explain.
The electric vehicle (EV) maker has had a lot of success since launching two luxury models: the R1T and R1S. Sales have increased from $1 million in September 2021 to $5 million today.
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This sales trend can continue with the launch of three new cars for the mass market: the R2, R3, and R3X. Unlike Rivian’s current high-end models, these are expected to start under $50. This could push the company to another level of growth, similar to what the Model 3 and Model Y did Tesla.
And yet, compared to other EV manufacturers such as Tesla and Lucid GroupRivian sells at a low price, according to several metrics. For example, it trades at 2.2 times sales — Lucid and Tesla trade at 6.5 and 12.3 times sales, respectively. If Rivian traded at this level, there would be a 200% to 600% potential upside.
And now, there’s a near-term catalyst that could close the gap quickly. One of the reasons why the market remains controversial is that the company continues to lose tens of thousands of dollars on every car it sells. This means that while sales growth has been impressive in recent years, revenue losses continue to rise.
That’s also the case for some smaller EV makers like Lucid, but top competitors like Tesla have earned good returns over the years. In an industry rife with bankruptcies, the market needs to see Rivian turn a profit before offering a higher valuation, especially given that its sales growth has slowed significantly over the past year.
You wouldn’t know it by Rivian’s dirt-cheap valuation, but the company is poised to turn to gross profit in the near future. If you listen to what management has promised, it should happen this quarter. If that happens, there won’t be much time before this becomes clear.
Last quarter, Rivian lost $33,000 on the car. That’s up from $37,700 a quarter earlier. And yet this month, management reiterated that the company was on track to achieve positive results next quarter. That would be a surprise, and the market is reasonably skeptical. But there is no doubt that Rivian’s share price will likely improve if this event occurs.
RIVN PS rate data by YCharts; PS = selling price.
Make no mistake, Rivian is not a stock for short-term investors. If the company fails to achieve good gross margins next quarter, the market may lose a lot of faith in it, especially given that the overall sentiment for EV stocks remains low right now regarding growth for years like 2021.
Invest in Rivian today, you should be happy with it not at all the future. If the company gets good gross margins, that is a big vote of confidence in its management and its ability to survive long enough to send its cars to the mass market in 2026 and 2027. But if the management is wrong in its estimation, and the stock sells. away, you should enjoy picking up some shares at a lower price.
Customer loyalty surveys and media like Consumer Reports they have already shown that Rivian is capable of producing cars that customers want. And getting EVs to market for under $50,000 has proven to be a big growth driver for Tesla. I expect more to happen to Rivian if it can survive financially until these models hit the road.
Positive gross margins can significantly improve the chances that they reach a significant level, but their interactions with investors include. Amazon and Volkswagen reduce some of the financial stress.
In any case, aggressive investors should be keeping an eye on Rivian before the next quarter’s results are released. Just be prepared to double down if expectations don’t match what’s available. Otherwise, this stock may not be for you.
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Ryan Vanzo has no position in any of the listed posts. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
Here’s Why Rivian Stock Is Buying Before August 30 was originally published by The Motley Fool
