Nikola Corporation (NKLA - Get Rating) is a technology innovator that develops energy and transportation solutions. The company operates through its two broad segments: Truck, which commercializes battery hydrogen-electric and battery-electric semi-trucks, and Energy, which constructs a network of hydrogen fueling stations.

NKLA’s founder Trevor Milton is on trial for securities and wire fraud charges. He is accused of evading investors by making inoperable products look fully functional and of lying about the company’s technology and partnerships.

The stock has declined 63.1% over the past year and 58.7% year-to-date to close its last trading session at $4.08. It is down 25.7% over the past month.

Here are the factors that could affect NKLA’s performance in the near term:

Bleak Financials

For the fiscal second quarter that ended June 30, NKLA’s adjusted EBITDA decreased 27.7% year-over-year to a negative $94.35 million. Non-GAAP net loss rose 36.3% from the prior-year quarter to $104.99 million. Non-GAAP net loss per share came in at $0.25, up 25% from the same period the prior year.

Stretched Valuations

In terms of its forward EV/Sales, NKLA is trading at 16.28x, 923.6% higher than the industry average of 1.59x. The stock’s forward Price/Sales multiple of 17.12 is 1,368.1% higher than the industry average of 1.17. In terms of its forward Price/Book, NKLA is trading at 2.53x, 7.9% higher than the industry average of 2.35x.

Negative Profit Margins

NKLA’s trailing-12-month gross profit margin of a negative 143.98% is significantly lower than the industry average of 29.05%. Its trailing-12-month ROE, ROTC, and ROA of a negative 104.28%, 54.34%, and 64.52% compare to their respective industry averages of 14.51%, 6.72%, and 5.14%.

Analysts Expect Bottom Line Declines

The consensus EPS estimates of a negative $0.38 and a negative $0.42 for the quarters ending September and December 2022 indicate 72.7% and 82.6% year-over-year decreases. Street EPS estimate for the current year (fiscal 2022) of a negative $1.28 reflect a decline of 62% from the prior year.

POWR Ratings Reflect Bleak Prospects

NKLA’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

NKLA has a Quality grade of F in sync with its bleak profitability margins. The stock also has a D grade for Value, consistent with its high valuations.

In the 63-stock Auto & Vehicle Manufacturers industry, it is ranked #53. The industry is rated D.

Click here to see the additional POWR Ratings for NKLA (Growth, Momentum, Stability, and Sentiment).

View all the top stocks in the Auto & Vehicle Manufacturers industry here.

Bottom Line

The fraud charges on the company’s founder could make investors anxious. Moreover, its weak financials and negative ROE are concerning. As analysts expect its bottom line to remain in the red for the current year, NKLA might be best avoided now.

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

While NKLA has an overall POWR Rating of F, one might consider looking at its industry peers, Stellantis N.V. (STLA - Get Rating) and Volkswagen AG (VWAGY - Get Rating), which have an overall A (Strong Buy) rating, and Hyundai Motor Company (HYMTF - Get Rating) and Isuzu Motors Limited (ISUZY - Get Rating), which have an overall B (Buy) rating.

NKLA shares were trading at $3.85 per share on Friday afternoon, down $0.23 (-5.64%). Year-to-date, NKLA has declined -60.99%, versus a -22.38% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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