Should I buy Rivian stock now?

Rivian’s share price has crashed in 2022. Edward Sheldon looks at whether this is a good buying opportunity.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young Woman Drives Car With Dog in Back Seat

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Back in early January, I looked at whether electric vehicle (EV) manufacturer Rivian (NASDAQ: RIVN) was a good stock to buy for my portfolio in 2022. At the time I concluded that the risk/reward profile was not attractive, due to the company’s high valuation.

In hindsight, that was a good call. Since then, the stock has fallen from near $100 to around $24, losing roughly 75% of its value. As a result, it’s now about 70% below its 2021 Initial Public Offering (IPO) price of $78.

Has my view on the shock changed after this enormous share price fall? Let’s take a look.

Rivian shares: time to buy?

Looking at Rivian stock today, I still don’t like the risk/reward proposition on offer. The first issue I’m concerned about is supply chain challenges. I believe Rivian (and a lot of other EV makers) are going to struggle to source lithium for their batteries this year. That’s because demand is far greater than supply right now.

In the next two years, even though there will be significant growth in supply, it will be less than demand, so the gap will just continue to grow,” Joe Lowry, president of Global Lithium, said recently.

They could also struggle to source semiconductors as we’re still in the midst of a global chip shortage. Many analysts expect this to last until well into 2023.

Given these supply chain issues, Rivian may not meet its production targets. It reaffirmed its annual production forecast of 25,000 units (halved from 50k in March) earlier this week. But I’m a little skeptical here. I think the risk is to the downside, given the supply chain environment.

The valuation is still high

A second concern for me is the valuation. Even after the recent share price collapse, Rivian’s market-cap is around $22bn. Given that the group is expected to generate revenue of $1.9bn this year (Q1 revenue was well below estimates, so it may not achieve this), that puts the price-to-sales ratio at over 10. In the current investment environment, that’s quite high.

It’s worth noting that immediately after the IPO lockup period expired a few weeks ago, major investor Ford offloaded 8m shares. This suggests it was worried about the high valuation.

Short sellers expect the share price to fall

A third issue is the stock’s short interest. According to my data provider, 91m Rivian shares are on loan at present. That means short interest is an eye-watering 57%.

This indicates that the short sellers expect the share price to continue falling. I’ll point out that, so far, the shorters, who were making big bets against the EV stock earlier in the year, have been so right on RIVN.

Better growth stocks to buy

Now, as I’ve said before, there are things to like about Rivian as a company. Not only does it have an excellent product in the R1T truck but it also has about 90,000 pre-orders for its EVs. Additionally, it has the backing of Amazon.

However, from an investment perspective, I continue to see a lot of risk. So I won’t be buying Rivian stock for my portfolio any time soon. I continue to believe that there are better growth stocks to buy.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has positions in Amazon. The Motley Fool UK has recommended Amazon. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young Asian woman holding a cup of takeaway coffee and folders containing paperwork, on her way into the office
Investing Articles

£20k to invest? 2 FTSE 250 dividend stocks to consider for a potential £1,220 passive income!

I think these two very different high-yield FTSE 250 stocks could be great sources of dividend income over the long…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

3 cheap growth shares that might prove to be hidden gems

Our writer thinks this trio of cheap shares might be worth considering for a growth-oriented Stocks and Shares ISA right…

Read more »

Investing Articles

Are Legal & General shares gaslighting me?

Harvey Jones is beginning to doubt his own take on reality. He thinks Legal & General shares are a brilliant…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Up just 8% in 5 years, what’s going on with the National Grid share price?

Over five years, the National Grid share price has grown -- but far less than the benchmark index of which…

Read more »

Investing Articles

Could Aston Martin be a millionaire-maker FTSE 250 stock?

This writer is wondering if cratering Aston Martin stock from the FTSE 250 might be worth a punt in his…

Read more »

Tanker coming in to dock in calm waters and a clear sunset
Dividend Shares

3 reliable FTSE 250 shares to consider buying for rising passive income

Paul Summers identifies three mid-cap stocks that all boast enviable records of throwing more cash back to their shareholders each…

Read more »

Investing Articles

How do Lloyds shares measure up as a GARP investment?

Hopes of strong profits growth continue to drive Lloyds shares skywards. Does the FTSE 100 bank now still offer value…

Read more »

Investing Articles

I asked ChatGPT to name the best UK stock to buy in March — and was stunned!

When Harvey Jones asked artificial intelligence to pick a UK stock for him to buy, it chose a company he…

Read more »