Phoenix, Ariz.-based manufacturer of heavy-duty commercial battery-electric vehicles, fuel-cell electric vehicles, and energy solutions, Nikola Corporation (NKLA), delivered its first Tre battery-electric vehicle (BEV) pilot trucks on Dec. 17. And on Dec. 21 it agreed to settle civil fraud charges brought by the Securities and Exchange Commission. It is expected to pay a $125 million fine to compensate investors. Nevertheless, the stock soared in price on Dec.23 on investors’ optimism after NKLA promised ‘more to come’ regarding its electric vehicles (EVs) on Twitter, Inc. (TWTR).

However, the stock has retreated 26.2% in price over the past year and 38.6% over the past six months to close the last trading session at $11.09. 

On September 27, NKLA entered a second $300 million common stock equity line purchase agreement, providing it with the right to issue and sell to Tumim up to $600 million worth of shares. However, this move could lead to share dilution. The company’s founder, Trevor Milton, sold $33.50 million of shares. And hedge fund’s interest in the stock has declined lately. So, NKLA’s near-term prospects look bleak.

Here is what could influence NKLA’s performance in the upcoming months:

Industry Headwinds

Governments worldwide have been taking steps to boost EV production amid growing climate change concerns, but high battery costs remain a concern. According to Bloomberg New Energy Finance‘s annual battery price survey report, global average battery prices fell 6% between 2020 -2021, but they might be on the rise going forward. The report also noted that higher raw material prices are already pushing up prices. Also, at the point when prices fall below $100 per kWh—generally considered a crucial milestone for EV affordability—is delayed by two years.

Furthermore,  the ongoing semiconductor shortage continues to impact EV production. According to a Deloitte report, the chip shortage is expected to last until early 2023. So, NKLA’s output could be hurt.

Lack of Profitability

NKLA’s loss from operations increased 131.8% year-over-year to $271.83 million for the third quarter, ended September 30, 2021. Its net loss increased 235.7% year-over-year to $267.57 million, while its non-GAAP loss per share came in at $0.22, up 37.5% year-over-year. In addition, its adjusted EBITDA was negative $85.02 million, compared to $58.75 million in the year-ago quarter.

In terms of trailing-12-month ROTC, NKLA’s negative 45.61% is lower than the 6.73% industry average. And the stock’s negative trailing-12-month ROCE and ROTA compare to the respective 13.58% and 5.15% industry averages.

Lofty Valuation

In terms of forward EV/S, NKLA’s 1,545.99x is higher than the 2x industry average. Also, its forward P/S and P/B of 1,767.31x and 5.88x, respectively, are higher than the 1.64x and 2.96x industry averages.

POWR Ratings Reflect Bleak Prospects

NKLA has an overall F rating, which equates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. NKLA has a D grade for Quality, which is consistent with its lower-than-industry profitability ratios.

The stock has a D grade for Growth. This is in sync with analysts’ expectations that its EPS will decline 40.3% in fiscal 2021 and 17.2% in fiscal 2022 and remain negative.

NKLA has an F grade for Value, which is consistent with its higher-than-industry valuation ratios.

NKLA is ranked #59 of 67 stocks in the F-rated Auto & Vehicle Manufacturers industry. Also, click here to see the additional POWR Ratings for NKLA (Stability, Sentiment, and Momentum).

Click here to check out our Automotive Industry Report 

Bottom Line

Investors were optimistic after NKLA delivered its first electric truck this month and settled fraud charges with the SEC. However, the stock is currently trading below its 50-day and 200-day moving averages of $11.29 and $12.47, respectively, indicating a downtrend. Furthermore, analysts expect its EPS to remain negative in the coming months. So, the stock is best avoided now.

How Does Nikola (NKLA) Stack Up Against its Peers?

While NKLA has an overall POWR Rating of F, one could check out these A-rated (Strong Buy) stocks in the same industry: Mazda Motor Corporation (MZDAY) and Daimler AG (DDAIF).

NKLA shares rose $0.80 (+7.21%) in premarket trading Monday. Year-to-date, NKLA has declined -21.04%, versus a 28.01% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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