This month, automaker Rivian Automotive (RIVN) announced laying off 6% of its workforce in an effort to conserve cash as it braces for an industry-wide price war. Preserving cash is one of the main priorities for the company as it had faced a year of huge losses. Thus, we wanted to scrutinize the fundamentals of RIVN to see if the stock should be avoided now.
The layoff move follows recent price cuts by its rivals, Tesla Inc. (TSLA) and Ford Motor Co (F), in an effort to win over smaller EV makers amid increasing competition in this space. F cut prices of its electric Mustang Mach-E crossover weeks after TSLA announced similar plans of reducing prices of its Model 3 and Model Y vehicles.
RIVN is also struggling with macro factors, such as high inflation, rising interest rates, difficulty in sourcing parts, etc. The company posted losses of more than $5 billion through the first three quarters of fiscal 2022 and had about $13.27 billion in cash and cash equivalents at the end of September 2022, compared to $18.13 billion as of December 31, 2021.
Furthermore, the EV maker missed its 25,000-unit production target for 2022. On a full-year basis, the company produced around 24,337 vehicles, including 10,020 in the fourth quarter. Of those, 20,332 vehicles were delivered last year, including 8,000 from October through December. The missed production target was disappointing for investors.
Moreover, during its IPO roadshow in 2021, RIVN said it was expected to build more than 50,000 vehicles in 2022. However, it slashed the guidance by half in March due to supply chain issues and could not even meet that target.
Shares of RIVN have declined 43.6% over the past six months and 68.4% over the past year to close the last trading session at $18.18. The stock is currently trading 73.3% below its 52-week high of $68.15, which it hit on February 28, 2022.
Here is what could shape RIVN’s performance in the near term:
Bleak Financials
RIVN’s gross loss widened 1,018.3% year-over-year to $917 million in the fiscal third quarter that ended September 30, 2021. Its total operating expenses increased 23.5% year-over-year to $857 million. The company’s loss from operations was $1.77 billion, compared to $776 million in the prior-year period.
Furthermore, the company’s net loss worsened by 39.8% from the year-ago value to $1.72 billion, and the net loss per share attributable to Class A and Class B common stockholders stood at $1.88 for the quarter. As of September 30, 2022, its cash and cash equivalents came in at $13.27 billion, compared to $18.13 billion as of December 31, 2021.
Mixed Analyst Estimates
Analysts expect RIVN’s revenue for the first quarter (ending March 2023) to come in at $852.50 million, indicating an increase of 797.4% year-over-year. However, the company’s loss per share of $1.59 for the ongoing quarter is expected to widen by 11.2% year-over-year to $1.59.
In addition, analysts expect RIVN to report a loss per share of $6.72 for the current fiscal year (ending December 2023). Also, the company’s EPS is expected to decline 31.6% per annum over the next five years.
High Valuation
In terms of forward EV/Sales, RIVN is currently trading at 3.49x, 187.1% higher than the industry average of 1.21x. The stock’s forward Price/Sales multiple of 10.17 is 974.3% higher than the industry average of 0.95.
Poor Profitability
RIVN’s trailing-12-month gross profit margin of negative 238.9% compares to the industry average of 35.41%. The stock’s trailing-12-month ROCE, ROTC, and ROTA of negative 127.71%, 38.22%, and 39.37% compare with the industry averages of 12.06%, 6.37%, and 4.20%, respectively. In addition, its trailing-12-month asset turnover ratio of 0.08x is 92.5% lower than the 1.02x industry average.
POWR Ratings Reflect Bleak Prospects
RIVN has an overall F rating, translating 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. RIVN has an F grade for Quality, in sync with its lower-than-industry profitability. In addition, it has an F grade for Stability. The stock’s 24-month beta of 2.31 justifies the Stability grade.
RIVN is ranked #53 out of 61 stocks in the Auto & Vehicle Manufacturers industry.
Beyond what I have stated above, we have also given RIVN grades Sentiment, Growth, Value, and Momentum. Get all RIVN ratings here.
Bottom Line
Shares of EV maker RIVN notched a new 52-week low of $15.28 on January 19, 2023, as investors became increasingly concerned about the company’s disappointing vehicle production result for 2022 and risky cash position. Analysts seem bearish about RIVN’s near-term prospects since it is expected to continue struggling with macro challenges, including material inflation, rising interest rates, and supply chain constraints.
RIVN workforce reduction to preserve cash to survive an industry-wide price war could also keep the stock under pressure. Given its vast losses, weak cash position, poor profitability, and stretched valuation, it could be wise to avoid this auto stock.
Stocks to Consider Instead of Rivian Automotive, Inc. (RIVN)
The odds of RIVN outperforming in the weeks and months ahead are significantly compromised. However, there are many industry peers with impressive POWR Ratings. So, consider these three A-rated (Strong Buy) stocks from the Auto & Vehicle Manufacturers industry instead:
Volkswagen AG (VWAGY)
Stellantis N.V. (STLA)
Honda Motor Co. Ltd. (HMC)
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RIVN shares were unchanged in premarket trading Friday. Year-to-date, RIVN has declined -3.42%, versus a 3.97% 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.
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