With a $25.36 billion market cap, Rivian Automotive, Inc. (RIVN) designs, develops, manufactures, and sells electric vehicles (EVs) and accessories. The company provides five-passenger pickup trucks and sports utility vehicles. It offers a Rivian Commercial vehicle platform for electric delivery vans in collaboration with Amazon.com.

Amid the uncertain market conditions, investors are shunning fundamentally weak and overvalued stocks like RIVN. RIVN has plummeted 72.1% year-to-date to close the last trading session at $28.71. Moreover, the stock has slumped 29.3% over the past six months. It is currently trading 84% below its 52-week high of $179.47, which it hit on November 16, 2021.

Macroeconomic headwinds, including sky-high inflation, rising interest rates, and increased commodity prices, led RIVN to trim its workforce. In July, the startup automaker laid off about 6% of its workforce. Also, the company continues to experience disruptions in the supply of raw materials or other components used in its vehicles.

The stock market is expected to remain under pressure as the Federal Reserve continues its hawkish stance to fight stubborn inflation. Moreover, the hotter-than-expected inflation report for September will likely keep the Fed on track to increase interest rates by 75 basis points at its meeting next month.

Michelle Meyer, a chief U.S. economist at the Mastercard Economics Institute, said, “The more inflation comes in above expectations, the more they’re going to have to prove that commitment, which means higher interest rates and cooling in the underlying economy.”

The S&P 500 plunged more than 24% year-to-date. In addition, the NASDAQ Composite and Dow Jones lost more than 34% and 18% year-to-date, respectively. According to Tobias Adrian, director of monetary and capital markets at the International Monetary Fund, a shift in investor sentiment could witness a further 20% downside in stocks.

Despite the broader market decline, RIVN is trading at a premium to its peers. In terms of forward EV/Sales, the stock’s 7.20x is 594.6% higher than the industry average of 1.04x. Likewise, its forward Price/Sales of 14.54x is 1,758.1% higher than the industry average of 0.78x.

Here is what could shape RIVN’s performance in the near term:

Bleak Financials

For the fiscal 2022 second quarter ended June 30, 2022, RIVN’s gross loss amounted to $704 million. Its total operating expenses increased 73.1% year-over-year to $1 billion. Its loss from operations came in at $1.71 billion, widening 194.5% year-over-year. The company’s adjusted EBITDA came in at a negative $1.30 billion, compared to a negative $559 million in the year-ago period.

Furthermore, RIVN’s net loss widened 195.2% year-over-year to $1.71 billion, while its net loss per share attributable to Class A and Class B common stockholders came in at $1.89. Also, its net cash used in operating activities came in at $1.20 billion, up 146.2% year-over-year.

Unfavorable Analyst Estimates

Analysts expect the company’s loss per share for the third quarter (ended September 2022) to come in at $1.81. Likewise, the company’s loss per share for the current and next year is expected to come in at $6.89 and $5.67, respectively. Furthermore, Street expects its EPS to decline 31.7% per annum over the next five years.

Low Profitability

RIVN’s trailing-12-month ROCE, ROTC, and ROTA of negative 96.58%, 33.62%, and 34.70%, compare with the industry averages of 14.93%, 6.91%, and 5.14%, respectively. The stock’s trailing-12-month asset turnover ratio of 0.04% is 96.3% lower than the industry average of 1.03%.

POWR Ratings Reflect Bleak Prospects

RIVN has an overall rating of F, equating to a Strong Sell in our proprietary 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 distinct categories. RIVN has an F grade for Value, in sync with its higher-than-industry valuation metrics. In addition, it has a grade of F for Quality, consistent with its lower-than-industry profitability metrics.

In the 63-stock D-rated Auto & Vehicle Manufacturers industry, RIVN is ranked #61.

Beyond what I have stated above, we have also given RIVN grades for Stability, Growth, Momentum, and Sentiment. Get access to all the RIVN ratings here.

Bottom Line

RIVN is a growth-stage EV company with a history of losses, and analysts expect the company to incur significant expenses and report losses for the foreseeable future. Given the volatile market conditions due to the Fed’s persistent hawkish stance and growing recession fears, the stock might decline further. Therefore, we think RIVN is best avoided now.

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

While RIVN has an overall POWR Rating of F, one could also check out these other stocks within the Auto & Vehicle Manufacturers industry with an A (Strong Buy) rating: Volkswagen AG (VWAGY), Daimler AG (DDAIF), and Jardine Cycle & Carriage Limited (JCYGY).

RIVN shares rose $0.54 (+1.88%) in premarket trading Monday. Year-to-date, RIVN has declined -72.31%, versus a -23.83% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...

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