By Anthony Summers, Wealthy Retirement,Trades Of The Day, 2024-09-16
Rivian Automotive (Nasdaq: RIVN) has been making waves in the electric vehicle market ever since its splashy IPO in 2021.
This disruptive startup manufactures electric trucks, SUVs, and delivery vans with innovative designs and an eco-friendly focus.
The stock's journey has been as electrifying as its vehicles. After debuting at $78 per share in November 2021, it skyrocketed to nearly $180 within days.
But the honeymoon was short-lived. As a broader tech sell-off took hold and investors scrutinized Rivian's fundamentals, the share price plummeted.
Over the past year, the stock has been bouncing between $10 and $25, a far cry from its lofty IPO levels.
But might now be the time for investors to bet big on the stock?
Let's run the numbers through The Value Meter to find out.
Rivian's enterprise value-to-net asset value (EV/NAV) ratio is a very low 1.59. That's significantly below the average of 10.95 for companies with positive net assets, which seemingly suggests an extreme bargain.
Not so fast, though… Rivian's cash burn is a real concern.
The company has churned out negative free cash flow in each of the past four quarters, with its free cash flow averaging -13.87% of its net assets during that span. That's a bit better than the -18.11% average for firms with similarly poor cash flow, but it's still a significant drain.
Revenue came in at $1.16 billion in the second quarter of 2024, driven by the delivery of 13,790 vehicles. But the company reported a net loss of $1.46 billion during the quarter – even worse than the $1.20 billion loss it reported over the same period last year.
Clearly, Rivian is still far from profitability.
However, it is making strides in production efficiency.
The company recently completed a retooling upgrade at its plant in Normal, Illinois, which is expected to increase production line rates by 30%.
Rivian has also introduced its second-generation R1 vehicles, which feature improved performance and lower production costs.
The company's partnership with Volkswagen is another potential game changer. This joint venture has a total deal size of up to $5 billion and could accelerate software development and reduce costs through economies of scale.
Lastly, Rivian's cash position remains strong, with $7.9 billion in cash and equivalents as of the end of the second quarter. This should provide a sufficient runway to fund the company's operations through the launch of its R2 platform in 2026, a crucial milestone for its growth plans.
But while the company has made progress and boasts innovative products, the ongoing losses and uncertain path to profitability justify a cautious stance.
The further we look beyond Rivian's seemingly low EV/NAV ratio, the less appealing the stock becomes.
At current prices, it's hardly a bargain.
The Value Meter rates Rivian as “Slightly Overvalued.”
— Anthony Summers
Source: Wealthy Retirement
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