Shares of the electric carmaker Fisker, Inc. (FSR - Get Rating) surged 57.3% last week after the company announced a collaboration with Foxconn Technology Group to develop a breakthrough electric vehicle. However, they tumbled on Monday and are currently trading at $27.38, 6.1% below their  52-week high.

It has been a crazy ride for FSR’s stock since the company went public via a SPAC merger in October 2020. Still in its pre-revenue stage, FSR reported significant operating expenses in its recently-released fourth-quarter financial results. Also, it will not be recording earnings growth until it starts the production of Fisker Ocean SUV in the fourth quarter of 2022. This suggests that it will be some time before the company becomes a viable EV maker and starts generating revenues.

Click here to checkout our Electric Vehicle Industry Report for 2021

Here is what we think could influence the performance of the stock in the near term:

Heated Competition in the EV Market

In the current highly competitive EV space the ultimate winners will have to be highly profitable to ensure a sustainable growth. With auto-behemoths including General Motors Company (GM), Volkswagen, and Tesla, Inc. (TSLA) intensifying their efforts to bring superior to bear and to ramp up EV production, it will become increasingly difficult for smaller EV players like FSR to stay afloat.

While the growth prospects for EV market is significantly higher now than  a decade ago, competition may be too big a  factor for FSR to overcome.

Battery Development Effort on Hold

In a recent interview with the Verge, Henry Fisker, the CEO of FSR, said that FSR’s effort to create a solid-state battery has been completely abandoned. He claimed that developing the battery had proved much more difficult than anticipated when the company first announced the project in 2017.

With investors counting on this breakthrough project for FSR’s future success, this recent move to abandon battery development could result in the stock taking a hit in the coming months.

Weak Financials

In the fourth quarter ended December 31, 2020, FSR’s operating costs and expenses increased 1033% year-over-year to $31.31 million. FSR generated a net loss of $12.04 million and an operating loss of $31.30 million. Its loss per share came in at $0.05. Moreover, the company is at its pre-revenue stage.

Stretched Valuation

In terms of it forward price-to-book ratio, FSR is currently trading at 8.33x, which is 127.7% higher than the industry average 3.66x. We believe this premium is unjustified given that other players in the booming EV market  are trading at relatively lower multiples despite having better financials.

Consensus Price Target Indicates Potential Downside

Currently trading at $27.38, analysts expect FSR to hit $19.75 soon, indicating a potential downside of 27.9%. Of the four Wall Street analysts that rated the stock, only one rated it a Strong Buy.

POWR Ratings Indicate Uncertain Outlook

FSR has an overall rating of F which translates to Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. Among these categories, FSR has a Growth Grade of F. This is consistent with its weaker earnings growth potential. Analysts expect FSR’s EPS to decline 92.5% in fiscal 2021.

In addition, FSR has a grade of F for Value and Quality, reflecting the stock’s relative overvaluation and lower profitability.

Of the 53-stock Auto & Vehicle Manufacturers industry, it is ranked #50.

Click here to access FSR’s ratings for Momentum, Stability, and Sentiment.

Better than FSR: Click here to learn about top rated Auto & Vehicle Manufacturers stocks.

Bottom Line

Although FSR is looking to break new ground due to its recent partnership with Foxconn to boost its automotive capabilities, the company needs to grow significantly to compete  in the sector.  We believe this, along with its stretched valuation, could result in a stock price decline in the near term.

Click here to checkout our Electric Vehicle Industry Report for 2021

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FSR shares were trading at $29.02 per share on Tuesday afternoon, up $1.64 (+5.99%). Year-to-date, FSR has gained 98.09%, versus a 4.13% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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