Nikola’s (NASDAQ:NKLA) only revenue in the second quarter was $36,000 for the installation of solar panels for founder and executive chairman Trevor Milton. If you are an owner of Nikola stock, you may be in for an eventful ride.
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Here are the pros and cons of the electric-vehicle startup’s shortfall in sales.
The Pros of Limited Revenue
If you’re looking for an InvestorPlace contributor that crunches the numbers, my vote will go to Mark Hake, whose CFA designation comes in handy when breaking things down for readers.
Recently, Mark argued that Nikola stock is likely overvalued right now. His argument centers on Nikola’s Badger truck reservations, or lack thereof. According to my colleague’s quick algebra calculation, he estimates the company’s received somewhere between 1,126 and 2,628 reservations since it started accepting them on June 29.
He goes on to say that while the company has 14,000 reservations for Battery-Electric (BEV) trucks, which come with a $750,000 price tag, only 800 of them are binding.
So, if you assume that all 2,628 Badger reservations get filled with the FCEV version ($80,000 a pop), you get $210.2 million in future revenue. Add to that 3,300 BEV’s at $750,000 a pop for a whopping $2.475 billion, and you get close to $2.7 billion in future revenue.
Based on its current market capitalization of $14.7 billion, you get a valuation of 5.5 times sales.
Of course, as my colleague states, that’s for mostly non-binding reservations and potential future orders. We all know life doesn’t go quite as smoothly as we plan. Cut that revenue in half to $1.35 billion and you’re talking about 11 times sales.
On the one hand, 11 times sales is a lot to pay for a company with actual revenue of $95,000 through the first six months of 2020. However, on the other, once the company starts delivering actual vehicles, you can be sure investors will feel a lot better about paying 11 times sales.
And if it delivers $2.7 billion in future revenue, at 11 times sales, that’s a market cap of $30 billion, more than double where it’s currently trading.
The Cons of Zero Sales
Tesla (NASDAQ:TSLA) went public on June 29, 2010, at $17 a share and a market cap of $1.6 billion. In fiscal 2009, it had annual sales of $111.9 million. That’s a price-sales ratio of 14 for a company with 1,200 times Nikola’s sales when it went public in 2020.
In my last Nikola article in July, I discussed the merger between Fisker and Spartan Energy Acquisition Corp. (NASDAQ:SPAQ), which would create another publicly traded electric vehicle manufacturer.
Ultimately, I believe the Fisker deal is good news for Nikola because it shows how much interest there is for electric vehicles today. When Tesla went public, there wasn’t nearly the same demand for vehicles powered by something other than the internal combustion engine.
A month earlier, I even suggested that Nikola could become the next Tesla.
“There’s no doubt that Nikola is an intriguing business. I’ve been a fan of electric and Elon Musk for a long time. I would welcome anyone building upon Musk’s legacy as one of America’s great innovators,” I wrote June 18.
“Ten years ago, Nikola wouldn’t have had a chance. Today, as long as it gets enough funding, the possibilities are real. Consumers want electric vehicles, and they want variety and choice. If Nikola adds to the pool, I could see it sticking around.”
However, I don’t believe investors will be very patient on the sales front. If it continues to fail to provide transparency around vehicle reservations, I could see Nikola stock losing altitude very quickly.
The Bottom Line on Nikola Stock
If you’re going to pay an arm and a leg for an electric vehicle stock, I would recommend Tesla over Nikola every day and twice on Sundays.
With so many options available, and so little revenue on its books, Nikola stock should only be an option for aggressive investors. Everyone else should wait for the picture to get a little clearer before hopping on the bandwagon.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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