Investors are heading for the exits after Nikola posted its first quarterly earnings report, but Wall Street analysts are stressing patience.
The over 10% plunge that Nikola (NASDAQ:NKLA) stock experienced after announcing a second-quarter loss is a mistake, Wall Street has reasoned.
In its first quarterly results as a public company, Nikola worth over $10 billion reported $36,000 in revenues. The new energy truckmaker incurred a net loss of nearly $87 million or $0.16 per share.
As a truckmaker that still uses computer renderings to showcase its future products, Nikola generated small revenues from a solar installation business. The company plans to discontinue this revenue stream going forward.
Nikola’s steep selloff was due to poor communication from the budding truckmaker, according to Cowen analyst Jeffrey Osborne.
The company failed to provide an updated share count, which resulted in the number getting overstated. According to Nikola’s executive chairman Trevor Milton, the share count is 304 million and not 424 million.
Additionally, reports had surfaced that a significant investor in the company had dumped his stake. According to Cowen, the investor in question–Jeffrey Ubben–stepped down from ValueAct to form Capital Partners. The move required a share transfer from ValueAct to Capital, and this created the impression of a share dump.
Deutsche Bank chose to focus on the future in its defense of Nikola. According to the firm, Nikola has confirmed that “critical milestones” will be achieved in the coming months. That’s all investors need to keep holding the stock.
Currently, four analysts are covering the stock. JPMorgan and Cowen have a buy rating on NKLA. Deutsche Bank has a hold rating.
The consensus rating for the stock is ‘overweight,’ with the average stock price target being $56. That represents an upside potential of over 60% from the current price.
Concerns remain for Nikola Motors, though. The stock has fallen by around 63% from its record high in June.
Nikola has yet to reveal the exact number of pre-orders it has received for its trucks, weeks after launching the online reservation process. Such information could help investors gauge customer interest.
Competition is something else to worry about. Nikola has yet to produce a prototype for its trucks, putting it far behind Rivian and Tesla (NASDAQ:TSLA). The two rivals will release their trucks in the coming months, giving them a market lead that could be difficult to overcome.
Video: The fight for supremacy in the electric truck space is on
In defending Nikola JPMorgan’s Paul Coster wrote:
NKLA is currently a story stock, trading on a massive multiple of distant-future earnings, and this naturally focuses the investment community on downside risks.
Coster then goes on to urge investors to focus on “what could go right here.” With the stock going down, investors seem to be focused on what could go wrong–and they are right to do so.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author holds no investment position in the above-mentioned securities.
Last modified: September 23, 2020 2:10 PM