I am neutral on Nikola (NKLA) as it enjoys strong growth momentum, a lengthy growth runway, a reasonable enterprise value-to-revenue valuation multiple, and an average price target that implies substantial upside potential.
However, it is far from profitable and operates in a highly uncertain industry, making it speculative.
Nikola is a manufacturer of commercial vehicles. It was founded in 2014 and is currently headquartered in Arizona. Trevor Milton was the founder of Nikola Corporation, who, in addition to being the CEO, also served as the company’s executive chairman.
In addition to commercial vehicles, the multinational company also manufactures and distributes hydrogen fuel-cell and battery EVs, energy storage systems, components, fueling station infrastructures, drivetrains, and other transportation-based solutions in the industry.
The public company operates solely in the automotive industry and has a wide customer base that is spread out throughout the globe.
Strengths
Nikola Corporation has been focusing on commercializing hydrogen-power technology that is used in the manufacturing process of heavy-duty trucks, thus creating a niche for its products and solutions.
Additionally, its relatively low total costs of ownership for customers give it a definite competitive edge over several other companies working in the same capacity.
Nikola Corporation also has a distinct value proposition, which is also a significant benefit for it in terms of its business and profitability.
It also has a successful track record of penetrating the long-haul, heavy-duty industry segments with electric-hybrid trucks. Its partnerships are expected to increase the business’s growth and expansion in the future.
Recent Results
In Q3 2021 ended in September, Nikola Corporation reported a net loss of $267.6 million for the quarter, which was a massive increase from Q3 2020’s net loss of $79.7 million.
Adjusted EBIDTA showed a negative balance of $85 million in Q3 2021, which was negative $58.8 million in the previous year’s third quarter.
The net loss per basic share was $0.67, and the net loss per diluted share was $0.68 for the quarter. The non-GAAP net loss per basic and diluted share was $0.22 for both.
The cash and cash equivalents in September 2021 reached $587 million, compared to December 2020’s cash and cash equivalents that totaled $840.9 million.
Valuation Metrics
NKLA stock is difficult to value as it is not yet profitable and is undergoing rapid growth.
While it currently trades at a 34.4x EV/revenue ratio and is expected to lose nearly $500 million in 2022, it is also expected to grow revenue by 5,241.5% in 2022, followed by a 472.4% growth rate in 2023.
As a result, if the company can effectively scale to the point where its profit margins become meaningful, it could generate very attractive returns for shareholders from current prices.
Wall Street’s Take
According to Wall Street analysts, NKLA earns a Hold analyst consensus based on zero Buy ratings, one Hold rating, and zero Sell ratings in the past three months. Additionally, the average NKLA price target of $11 puts the upside potential at 48.9%.
Summary and Conclusions
Nikola operates in a high-growth industry that gives its stock high upside potential. In fact, after the recent pullback in the share price the stock looks like it might be an interesting option.
That said, it is still a long way from being profitable.
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