Nikola (NKLA), the would-be electric truck-maker that went public in a reverse merger into a shell company in June, attracted a lot of attention as its stock more than doubled in the week following its "IPO." Since then, Nikola stock has enjoyed its share of ups and downs -- but mostly downs.
At $38 and change, Nikola shares have almost completed a round trip to the $34 they fetched on their first day of trading, and with that reset nearly complete, analyst Daniel Ives at Wedbush is ready to give Nikola another chance.
In a note Tuesday, Ives "initiated coverage" of Nikola stock. True, the "neutral" rating he assigned the stock seems to indicate more interest than enthusiasm. But even so, Ives attempted to make the case for why Nikola might be a stock worth watching going forward.
Ives points out that, whereas electric car pioneer Tesla has focused on building cars and SUVs for personal transportation, Nikola is focusing its efforts in the commercial realm -- heavy-duty freight/semi-trucks that can be powered either entirely by battery, or utilize a hybrid hydrogen-electric powertrain, in which hydrogen gas is passed through a fuel cell to generate electricity.
"Hydrogen powered batteries have long been known as a promising alternative to gas powered vehicles" because they produce fewer greenhouse gases, explains Ives. (Actually, no greenhouse gases. The main byproduct of creating electricity from hydrogen fuel cells is ... water). Hydrogen fuel cells also have advantages over purely battery-powered electric vehicles in that storing hydrogen fuel in an on-board tank can stretch a fuel cell vehicle's range to as far as 500 to 700 miles. (That's as compared to a tested range of 400 miles for an all-electric Tesla Model S sedan).
Moreover, because semi-trucks are so much larger than passenger cars and SUVs, they're able to carry larger hydrogen fuel tanks to make that range possible. And because it takes less time to refill a tank of compressed hydrogen, than to recharge an electric car's battery, hydrogen fuel cell-powered trucks may make more sense for commercial trucking firms with schedules to keep.
All that being said, valuation is still an issue with Nikola. Wedbush's analyst hopes that Nikola may thrive "over the next decade." Still, he admits that, despite carrying a $15.5 billion valuation, Nikola stock has had, and will have "essentially no revenue until the end of 2021" at the earliest. Ives forecasts revenues of $44 million in Q3 2021, rising to $100 million in Q4. In the meantime, it's hard to fix a valuation multiple to a company that lacks not just profits right now, but revenues, too. So for the time being, Ives is forced to conclude that Nikola is a "story stock" that needs to "prove" itself capable of transforming into a viable business and a profitable company.
For now, the most Ives is willing to commit himself to is a "neutral" rating on Nikola, despite assigning the stock a $45 price target that implies he at least thinks the stock could be undervalued at present. (To watch Ives' track record, click here)
Overall, Wall Street is torn when it comes to whether to sing this electric-truck maker's praises or assess with an apprehensive gaze. According to TipRanks, out of 5 analysts polled in the last 3 months, 2 are bullish on NKLA stock while 3 remain sidelined. Yet, with a potential upside of 40%, the stock's consensus target price stands tall at $53.75. (See NKLA stock analysis on TipRanks)
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This article was originally posted on TipRanks.
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