Is Nikola Stock a Buy?

By | March 28, 2024

Almost 24% less driving since the beginning of this year, Nikola (NASDAQ:NKLA) has failed to keep pace with the S&P500, which is up almost 10%. Enthusiasm for the battery truck maker has waned significantly from several years ago, when the stock made its debut on the public markets.

The company has hit several bumps in the road and the market has punished the stock recently, but that doesn’t mean the stock can’t reverse the trend and move higher. Many optimists believe now is a good time to add electric vehicle (EV) stocks to their portfolios.

Let’s take a closer look at both arguments to better understand whether buying shares now is a smart move.

Bears are hesitant to buy stocks for several reasons

For pessimists, the company’s weak financial health is the core of their concern. In 2023, Nikola reported revenues of $35.8 million, down 28% year over year. At the bottom of the income statement, Nikola reported earnings before interest, taxes, depreciation, and amortization (EBITDA) of negative EBITDA of $752.7 million, a bigger loss than the negative EBITDA of $698 million reported in 2022.

Critics will be quick to point out that Nikola’s financial situation pales in comparison to the company’s projection of where it would be today. In a 2020 investor presentation, Nikola forecast 2023 revenue and EBITDA of $1.4 billion and negative $66 million, respectively.

The bears’ concerns are compounded by the prospect of shareholder dilution. Nikola has suffered major losses in recent years and has resorted to raising capital through issuing shares to keep the lights on.

NKLA stock outstanding chartNKLA stock outstanding chart

NKLA stock outstanding chart

Beyond the financials, the bears are putting the brakes on Nikola stock as competition continues to increase. Although the company has failed to achieve the growth it envisioned in recent years, competitors in the electric truck space show no signs of slowing down.

Tesla represents a well-known and formidable enemy with its semi-battery electric truck. In Nevada, Tesla is developing a gigafactory, which the company considers its “first large-scale semi-factory.”

In the meantime, Daimler Truck also challenges Nikola’s progress. In 2023, the company reported 3,443 electric truck deliveries. Nikola, on the other hand, shipped 114 trucks to customers.

Bulls like Nikola’s hydrogen prospects

Rather than dwell on Nikola’s challenges, optimists firmly believe that the road ahead for the company will be a lot smoother than its recent path. Bulls believe the gap between the company’s assessment of where it would be now and where it actually is now stems from the deception of the company’s founder, Trevor Milton, who was convicted of securities fraud in December.

Steven Girsky, who has held various leadership positions, is now at the helm General engines, including vice chairman and president of GM Europe. Optimists are more confident that Girsky will be more adept at steering the company in the right direction.

Bulls are also excited about Nikola’s predictions for 2024. While the company’s financial performance in 2023 left a lot to be desired, management’s outlook for this year is encouraging.

At the top of the income statement, management estimates that truck sales will generate revenue of $150 million to $170 million (significantly higher than 2023). When it comes to profitability, management believes the company’s gross margin will shrink significantly, from negative 597% in 2023 to negative 100% to negative 80% in 2024.

The company is already seeing some success in 2024, fueling the hopes of Nikola enthusiasts. In February, it announced the opening of its first hydrogen fueling station in Southern California. Nikola has high ambitions for these Hyla-branded fuel stations, which will meet the demands of both its electric hydrogen fuel cell trucks and those of drivers of other Class 8 hydrogen trucks.

Nikola hopes to have fourteen of these types of gas stations in operation by the end of 2024.

What should an EV-focused investor do now?

Both bulls and bears make valid arguments regarding the buyout case for Nikola. Ultimately, investors will have to decide for themselves whether this is the right time to park Nikola stock in their portfolios. However, it is critical that potential buyers understand the significant risks associated with an investment.

There is no guarantee that the company will achieve its 2024 projections. If so, there is no certainty that growth will continue in 2025. Therefore, the wisest course of action for the majority of investors is to continue watching this story evolve from the side of the road for the time being.

Should You Invest $1,000 in Nikola Now?

Before you buy shares in Nikola, consider the following:

The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Nikola wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.

Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates and two new stock picks per month. The Stock Advisor service has more than tripled the return of the S&P 500 since 2002*.

View the 10 stocks

*Stock Advisor returns March 25, 2024

Scott Levine has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Tesla. The Motley Fool recommends General Motors and recommends the following options: In January 2025, $25 would appeal to General Motors. The Motley Fool has a disclosure policy.

Is Nikola Stock a Buy? was originally published by The Motley Fool

Leave a Reply

Your email address will not be published. Required fields are marked *