Should You Buy the Dip in Rivian Stock in 2023?

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Its share price has fallen 80% in the last 12 months, Rivian Automotive (RIVN -4.30%) It has been a big disappointment for its initial investors. While much of the downside could be attributed to macroeconomic factors beyond management’s control, it was difficult to justify the company’s high valuation. Let’s discuss whether the shares are now cheap enough to buy.

What is Rivian?

Founded in 2009, Rivian Automotive is an American car company specializing in all-electric trucks and SUVs. The stock went public in late 2021 at $78 per share, giving it a market cap of more than $66 billion, despite virtually no revenue or profit at the time.

Perhaps Rivian’s IPO was one of many signs that financial markets were overheated. And by 2022, the US Federal Reserve has launched it Fastest rate hike cycle Historically, its federal funds rate is moving from zero to 4.10% at the time of writing. Higher rates increase the cost of capital and change the investor’s risk/reward calculus — often leading to steep declines for highly valued growth stocks. Rivian.

Like similar stocks Tesla And Lucid motor Also took a beating (both down 64% and 80% respectively in the last 12 months). But that doesn’t completely overshadow Rivian’s company-specific problems. In March 2022, the company was forced to back off on planned price hikes (by $12,000 and $14,500) for its pre-ordered R1T truck and R2S SUV, suggesting supply chain challenges and inflation could affect its operations. It will ultimately have to pass these costs on to consumers or face poor margins.

Can Rivian overcome his challenges?

If there’s one thing Rivian has, it’s growth. Third-quarter earnings highlight the company’s explosive potential. Third quarter revenue rose from just $1 million in Q3 2021 to $536 million in Q3 2022 as the company ramped up production. But despite stellar growth, Rivian is nowhere near profitable. Operating losses more than doubled to $1.77 billion in Q3 2022, and investors should expect that number to rise until the company earns enough to cover significant outflows, such as research and development needed to continue improving its products.

The cabin of a futuristic car.

Image source: Getty Images.

Loss-making companies are particularly vulnerable in the Federal Reserve’s tightening cycle because higher rates make it more expensive to access the capital needed to sustain operations. Rivian is somewhat immune to this challenge. after Its massive IPO, the company boasts $13.3 billion in cash and equivalents compared to zero long-term debt. It also has rich supporters.

Rivian’s early investors include the global e-commerce giant the amazon, which invested $1.3 billion in the company before it went public. Amazon plans to partner with Rivian to make its logistics operations more environmentally friendly. And the tech giant has pre-ordered 100,000 of Rivian’s electric delivery vans, providing a stable revenue stream that could eventually grow over the long term.

The stock is still quite richly valued

one with Price to Sales (P/S) multiple 15, significantly more expensive than Rivian stock S&P 500of Average 2.4. But this is a significant decline from the multiple of over 200 at the start of 2022. As Rivian’s revenue continues to grow, investors can expect the valuation to drop even further if the share price doesn’t rise.

While high rates and other macroeconomic uncertainties make it a tough time to bet on unprofitable growth stocks right now, Rivian’s rapid top-line expansion and valuable partnership with Amazon could make the company a long-term winner for patient investors.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors of The Motley Fool. Will Ebifung has no position in any of the stocks mentioned. The Motley Fool has positions on and recommends Amazon.com and Tesla Motley Fool has a revealing policy.


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