Chronicle Journal: Finance

Is Electric Vehicle Stock Nikola Still a Buy?

Nikola Corporation (NKLA) experienced a dramatic 2020. It has been on a steep downtrend owing to the recent developments that have turned things sour for the company. Let’s find out whether it is time to buy or sell NKLA.

Nikola Corporation (NKLA) is a designer and manufacturer of battery-electric and hydrogen-electric vehicles. The company operates as an integrated zero-emissions transportation systems provider and develops electric vehicle solutions for military and outdoor recreational applications.

NKLA’s stock soared initially last year as investors bet on the company’s promising growth story. However, its price collapsed soon after, primarily because of an abandoned partnership with Republic Services and negative market sentiment due to allegations of fraud against  the company’s founder. In addition, a substantial downsizing of orders in a partnership with General Motors have added to the company’s woes. NKLA’s  poor financials are a further damper on its future.

Even though the stock has gained 11.9% year-to-date, its weak fundamentals and uncertainty about its potential to rebound have led our proprietary rating system to rate the stock as “Sell.”

Here is how our proprietary POWR Ratings system evaluates NKLA:

Trade Grade: F

NKLA is currently trading lower than its 50-day and 200-day moving averages of $19.50 and $29.82, respectively, indicating that the stock is in a downtrend. In fact, the stock’s 30.7% loss over the past three month reflects a short-term bearishness.

Moreover, the company’s results for its last reported quarter do not look promising. NKLA reported a net loss of $117.47 million in the third quarter ended September 30, 2020. The company’s EPS declined 616.7% year-over-year.

On December 23, NKLA and Republic Services announced the discontinuation of their collaboration to design an industry-first refuse truck powered by  a zero-emissions battery-electric drive platform. The termination of the partnership has resulted in the cancellation of the previously announced vehicle orders.

NKLA has been facing securities class action lawsuits filed by the Schall  and the Bernstein Liebhard law firms on behalf of its shareholders. The company is also being investigated for potential violations of the federal securities laws by Johnson Fistel, LLP.

Buy & Hold Grade: F

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers , NKLA is poorly positioned. The stock is currently trading 81.8% below its 52-week high of $93.99, which it hit on June 9. This can be attributed to NKLA’s cancelled deals and the downsizing of orders. The company is also starting to lose its footing in the burgeoning EV market amid growing speculation surrounding  class action lawsuits it faces.

Peer Grade: D

NKLA is currently ranked #42 of 51 stocks in the Auto & Vehicle Manufacturers industry. Other popular stocks in this industry are Tesla, Inc. (TSLA), BYD Company Limited (BYDDY) and Tata Motors Limited (TTM)

These industry participants have comfortably beaten NKLA year-to-date. TSLA, BYDDY, and TTM have gained 15%, 22.1%, and 26.2%, respectively, over this period, versus NKLA’s 11.9% return.

Industry Rank: A

The Auto & Vehicle Manufacturers industry is ranked #11 of  123 industries. The companies in this industry manufacture and sell electric as well as traditional vehicles, such as passenger cars, light trucks, motorcycles, and more.

The coronavirus pandemic has accelerated developments in the automotive sector. As the pressure to go electric grows more intense, some automakers could emerge stronger than ever. This means that the sale of electric cars could reach surprisingly high levels as more carmakers are tempted to sell EV’s instead of gasoline l-powered vehicles seeking far greater profits in the future.

Overall POWR Rating: D (Sell)

NKLA is rated “Sell” due to its weakening fundamentals, ongoing investigations, and stiff competition as determined by the four components of our overall POWR Rating.

Bottom Line

NKLA’s poor financial performance, substantial downsizing of orders, ongoing investigations due to fraud allegations, and termination of important collaborations do not position the stock well for riding the EV wave.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is not favorable for NKLA. The consensus EPS estimate for 2021 represents a 31.4% decline year-over-year. The consensus revenue estimate of $40,000 for the quarter ending March 31, 2021, represents a 31% decrease from the same period last year.

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NKLA shares were trading at $18.71 per share on Tuesday afternoon, up $1.63 (+9.54%). Year-to-date, NKLA has gained 22.61%, versus a 1.42% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.


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