Say what you will about 2020, but you certainly can’t describe it as boring. The coronavirus might be front and center for its ruinous global impact, but other remarkable stories have sprung up beside it.
The unlikely rise of electric heavy-truck maker Nikola (NKLA) is one such story. Not only does Nikola have no product to sell yet, the company doesn’t even have a fully functioning prototype ready. Yet, in June, the upstart boasted a bigger market cap than motoring giant Ford.
Since then, a pullback has been witnessed - the market still makes sense sometimes - as reality has dawned. While Nikola has some great ideas, they are not much more than that - at least for now.
Nikola stock got another reality check on Monday July 20, when shares cratered by 21% after the company made it known - through an S-1 filing - that it plans on selling up to 23.9 million shares, consisting of public and private warrants, which can be purchased for the price of $11.50 - well below the $39.75 price shares are currently going for. Additionally, 53.4 million shares owned by PIPE (private investment in public equity) investors can now also be traded on the market.
Deutsch Bank analyst Emmanuel Rosner concedes that flooding the market with an extra 77 million shares “could create large technical selling pressure on NKLA stock,” as early investors take profit. Yet, the analyst also notes the sell-off could present a unique opportunity.
“Once the stock eventually stabilizes,” Rosner said, “We believe this could create a potentially attractive entry point for investors into NKLA, a rare pure play on zero-emission commercial trucks, whose adoption is poised to take off, driven by global regulations. In particular, Nikola’s fuel-cell solution which bundles electric truck, hydrogen fuel, and full service and maintenance in one contract priced at lower cost of ownership than traditional trucks, could be attractive to fleet operators, and generate solid revenue for Nikola and attractive returns throughout the life of the vehicles.”
At present, Rosner has a Hold recommendation on Nikola along with a $54 price target. The implication for investors? Upside potential of 48%. (To watch Rosner’s track record, click here)
Among Rosner’s colleagues, Nikola has a Moderate Buy consensus rating, based on an evenly split 2 Buys and Holds, each. The recent pullback has made entry more attractive, and with an average price target of $56, there’s possible upside of 53% over the next 12 months. (See Nikola stock analysis on TipRanks)
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