Electric vehicle manufacturer Rivian Automotive, Inc. (RIVN - Get Rating) designs and develops five-passenger pickup trucks and sports utility vehicles. The automaker’s flagship products, R1T and R1S, have been witnessing robust demand. As of May 9, 2022, RIVN received over 90K net R1 preorders from consumers in the United States and Canada.

However, lost production time due to supply chain constraints and semiconductor chip shortages could threaten the growth of the EV maker. Its shares have declined 37.7% over the past three months and 74.7% year-to-date. The stock is trading 85.4% below its 52-week high of $179.47, indicating bearishness.

Although RIVN’s collaboration with Amazon.com, Inc. (AMZN) to launch its Electric Delivery Van and improved organic growth opportunities could enable it to increase its share in the existing markets, the company’s negative profit margin due to rising overhead costs could be concerning.

On top of that, growing logistics expenses due to supply chain constraints could hurt the EV manufacturer’s prospects.

Here is what we think could influence RIVN’s performance in the near term:

A Slew of Challenges

As the Russia-Ukraine war continues, supply constraints of crucial materials and increasing prices of nickel, lithium, and other materials continue to threaten production rates of electric vehicle manufacturers like RIVN.

Since the automaker has been witnessing supply chain bottlenecks of semiconductors and a few non-semiconductor components, it is forced to halt production for extended periods than expected, resulting in nearly a quarter of the planned production time being lost.

Furthermore, its negative profitability amid inflation uncertainties and fears that a recession is unavoidable could hurt investor sentiment.

Lackluster Financials

RIVN’s total operating expenses for the first quarter ended March 31, 2022, were $1.08 billion. This compares to $410 million for the first quarter of 2021. Also, its net loss came in at $1.59 billion, while its loss per share came in at $1.77 over this period.

Moreover, the EV maker’s loss from operations rose 285.1% year-over-year to $1.58 billion. Furthermore, RIVN’s gross profit stood at a negative $502 million, primarily attributable to low volumes on production lines designed for higher volumes. Its adjusted EBITDA came in at $1.14 billion compared to $396 million for the same period in the prior year.

Its trailing-12-month ROE, ROA, and ROTC are negative 69.5%, 27.6%, and 28.2%, respectively. Also, the company’s trailing-12-month cash from operations stood at a negative $3.29 billion.

Stretched Valuation

In terms of trailing-12-month EV/Sales, RIVN is currently trading at 58.46x, which is significantly higher than the industry average of 1.1x. Its forward Price/Sales multiple of 12.87 is 1,411.6% higher than the industry average of 0.85.

Unfavorable POWR Ratings

RIVN has an overall rating of D, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. RIVN has a C grade for Quality. The stock’s negative ROE and ROA are reflected in this grade.

Also, it has a C grade for Value, which is consistent with the stock’s premium valuation.

In terms of Stability Grade, RIVN has an F, indicating that the stock is more volatile than its peers.

Beyond the grades we’ve highlighted, one can check out additional RIVN ratings for Sentiment, Growth, and Momentum here.

Of the 65 stocks in the F-rated Auto & Vehicle Manufacturers industry, RIVN is ranked #42.

Bottom Line

Even though RIVN’s solid brand and product portfolio and the launch of its commercial business in collaboration with Amazon have raised investors’ hope about the stock’s prospects, it could be wise to steer clear from the stock because its weak fundamentals are not in sync with its premium valuation.

Moreover, increasing logistics and overhead costs and supply chain limitations may further pressure its bottom line.

How Does Rivian Automotive (RIVN) Stack Up Against its Peers?

While RIVN has a D rating in our proprietary rating system, one might want to consider taking a look at its industry peer, Honda Motor Company, Ltd. (HMC - Get Rating), which has an A (Strong Buy) rating, and Mazda Motor Corporation (MZDAY - Get Rating) and Bayerische Motoren Werke Aktiengesellschaft (BMWYY - Get Rating), which have an overall B (Buy) rating.

RIVN shares . Year-to-date, RIVN has declined -74.69%, versus a -22.73% 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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