Every stock involved in the electric vehicle sector has been flying high lately. Right? Well, not exactly. The exception to the rule is gloriously notorious Nikola (NASDAQ:NKLA), the automaker that folks love to hate. Does this mean that every shareholder should abandon NKLA stock and run for the hills?
I have a propensity to favor stocks that are out of favor, and NKLA stock definitely falls into that category now. It’s easy to find reasons to lean bearish on Nikola, and I’ll certainly address the company’s issues.
That being said, we should also acknowledge that it’s tough to find bargains in the electric vehicle market nowadays. Some electric vehicle stocks have posted gains of 50%, 100% or more over the past six months.
Could NKLA stock be a rare bargain in its niche? Or, is it nothing more than market poison, like so many commentators seem to suggest? Come take a ride with me as I examine the automaker — warts and all.
A Closer Look at NKLA Stock
No price chasing allowed: that’s what I tell folks over and over, but they sometimes have to learn this lesson the hard way.
Nikola provides a textbook example of what can happen when you chase after a stock that’s gone parabolic. As you may recall, the NKLA share price rocketed from around $13 in early May of 2020 to a stunning 52-week high of $93.99 on June 9.
After that, anyone who held on to the stock for the long haul probably regretted it. By the end of July, NKLA was down to $30. And as of Feb. 17, 2021, the share price settled at $21.50.
I suppose there is some consolation in the fact that NKLA stock is generally trending up in the short term. At least we can say that the stock is higher than its Dec. 24 price of $13.75.
From a longer-term perspective, though, it’s fair to say that Nikola has been the subject of a severe beatdown. So, is there hope for any sort of sustained recovery?
All Played Out
Admittedly, Nikola doesn’t have a whole lot of friends on Wall Street.
Still, the company does appear to have a friend — or at least, someone who’s not a sworn enemy — as Wedbush analyst Daniel Ives recently upgraded his rating on Nikola from “underperform” to “neutral.”
Not only that, but Ives upped his price target on NKLA stock from $15 to $25. In defense of this price objective, Ives asserted that most of Nikola’s “negative catalysts” have played out.
I actually tend to concur with this assessment. The markets are very forward-looking, and the after-effects of recent negative events have likely already been priced in to NKLA stock.
By “negative events,” I’m referring to Trevor Milton’s resignation from Nikola’s chairman position amid claims of fraud, as well as General Motors’ (NYSE:GM) slimming down of its partnership with Nikola.
Only Up from Here?
These events, while discouraging, are already known and have soured the market’s mood when it comes to Nikola.
Perhaps it’s possible, then, that NKLA stock can only go up from here. As Ives explains, Nikola’s “EV and hydrogen fuel cell ambitions” may still be “attainable in the semi-truck market.”
To see how this is possible, we should take a step back and look at the Nikola Two truck model, which the company calls a “high-efficiency hydrogen fuel-cell sleeper for long-haul applications.”
Driven by hydrogen power, the Nikola Two offers superior efficiency and aerodynamics, and can “accelerate up to 2x faster than a stock diesel tractor.”
Moreover, Nikola’s trucks offer excellent range. Indeed, the company’s trucks compete will in this regard, with an estimated range of 500-750 miles between fill-ups.
The Bottom Line on NKLA Stock
Buying NKLA stock is a risky proposition; I won’t deny that. Furthermore, you won’t have the majority of commentators on your side if you buy the stock.
Nevertheless, don’t conclude that NKLA stock is a dead investment. Much of the bad news about Nikola has already been priced in to the shares, and the company remains an ambitious player in the electric vehicle and hydrogen fuel cell niches.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
View more information: https://investorplace.com/2021/02/despite-price-decline-nkla-stock-isnt-dead-in-the-water/