The baffling stock market rally has seen an odd basket of stocks ranging from bankrupt firms to companies with zero revenues soaring. Nikola Corporation (NASDAQ:NKLA) fits perfectly in this group as it expects to generate no revenues this year.
After it started trading last week following a reverse merger with VectorIQ Acquisition , the stock is up over 80% .
Analysts have warned that, due to various concerns, the stock could drop by up to 75%. That hasn’t stopped traders on Robinhood from elevating it as the most popular stock of the month. Interestingly, NKLA has only traded publicly for about a week.
Despite the excitement surrounding Nikola, analysts are urging caution.
For instance, Citron Research expects the stock to fall by over 30% from the current levels in a month.
The research firm reminded readers that when Tesla (NASDAQ:TSLA) first reached Nikola’s market cap, the Elon Musk-led firm had already released the Model S sedan and the Model X SUV.
Nikola has yet to sell a single truck and is not about to in 2020. The renewable energy carmaker will only start accepting reservations for its Badger truck towards the end of the month.
According to Citron, Nikola’s founder Trevor Milton sold some of his shares at $10–a clear sign that even he saw overvaluation risks.
Nikola has yet to reveal when the truck will become available and how much it will cost. The firm expects to start generating revenue in 2021.
Equally bearish about the stock is the ex-CEO of Aegon Asset Management U.S., Gary Black. Per Black, Nikola is a bubble as big as the “pot stocks a few years back.”
Contrasting it with Tesla and the Amazon-backed Rivian, Black argues that Nikola’s most significant shortcoming is its lack of manufacturing capabilities. Nikola has announced that it will partner with established carmakers to make trucks.
Calling it the “ultimate greater fool stock,” Black argues that investors are wrong to see it as the Tesla of trucks . For starters, when Tesla had Nikola’s market cap, the Musk-led fir was generating $1.4 billion annually in revenue. Nikola isn’t expected to reach that level until 2023. And when it does, Black says the stock’s value should be $15–a 77% drop from current levels.
Despite legitimate concerns raised over Nikola, millennials are unshaken. Currently, NKLA is the most popular stock over a month despite trading for barely a week. During that short period, the number of Robinhood investors holding NKLA has increased by over 138,000.
Over the same period, NKLA has outpaced Tesla in popularity. Tesla has added about 32,000 investors on the trading app over the last 30 days.
Analysts may shout themselves hoarse warning investors about Nikola, but millennials are having none of it.