Rationale Behind Buying Rivian Shares Prior to February 20th
Rivian's (RIVN 5.95%) stock has seen some wild swings in the past year, ranging from $8 to a high of $20. But don't let the volatility fool you—this electric vehicle (EV) manufacturer boasts tremendous long-term growth potential. And with a critical announcement around the corner, next month could be a game-changer for the company.
If you're on the hunt for high-growth stocks, Rivian might be worth considering for your portfolio. But before you jump in, there are a few things you should know.
Why Rivian's Stock Price is Low
Quarterly earnings reports are a crucial part of a public company's communication with investors. Some of these reports are more significant than others. Since Rivian went public in 2021, its sales have skyrocketed from a few hundred million to over $4.5 billion. However, its gross profit—the amount it makes from selling its EVs—remains in the red. Despite selling billions in vehicles over the last year, Rivian has racked up a gross loss of nearly $2 billion.
Losing money in the short term isn't uncommon for many companies. Unusual expenses or poor quarters can skew the balance sheet. But Rivian has been losing money on an annual basis. Its margins have improved slightly due to increased revenue, but it's still losing money on every vehicle it sells.
The company plans to introduce three new vehicle models starting in 2026. These models will be priced under $50,000, and Rivian sees this as a potential turning point for its sales base. However, launching these new models will require substantial investments. If Rivian struggled to turn a profit with high-end vehicles, it's understandable to question whether it can achieve that goal with affordable models.
This investor skepticism has contributed to Rivian's relatively low valuation. Rivian trades at just 3.2 times its sales, while competitors like Lucid Group and Tesla trade at 10 and 14 times their sales, respectively. It's worth noting that while Lucid Group remains unprofitable like Rivian, its revenue is a fraction of both Rivian's and Tesla's. The fact that Rivian continues to lose money at its current scale has some investors questioning if it will ever be able to sell EVs at a profit, despite high demand for its vehicles.
Keep an Eye on Rivian's Upcoming Earnings Report
So what should you watch for next month, when a crucial announcement may be on the horizon?
February 20th becomes significant because it may bring news that impacts Rivian's valuation.
In early 2024, Rivian's management team surprised investors and analysts by stating that they expected the company to achieve gross profitability by the end of the fiscal year. Although Rivian has made progress towards that goal, it still posted a negative gross profit of nearly $400 million just two months ago. Despite this, Rivian's management team remains optimistic, expecting "modest positive gross profit" by the end of the year.
Reaching this milestone would be a significant shift for Rivian, transforming it from a constant money-loser to a company that can scale revenue while doing so profitably. It's an ambitious goal, but Rivian's management team remains confident. If Rivian manages to achieve positive gross profits, expect its valuation to soar.
In summary, Rivian's low valuation compared to competitors like Lucid Group and Tesla is due to several factors, including modest sales growth, financial challenges, and supply chain disruptions. However, if Rivian can overcome these hurdles and achieve gross profitability, it has the potential for significant growth. Keep an eye on its upcoming earnings report next month for any updates on its financial outlook.
Investors looking for high-growth stocks might find Rivian appealing for their portfolios, given its significant sales growth from 2021. However, the company's profitability remains a concern, with quarterly reports showing a gross loss of nearly $2 billion despite selling billions in vehicles.
Rivian aims to introduce three new affordable vehicle models starting in 2026, which could potentially boost its sales base. However, launching these models will require substantial investments, casting doubt on Rivian's ability to achieve profitability with lower-priced vehicles.
Despite these challenges, Rivian's management team has expressed optimism, targeting "modest positive gross profit" by the end of the year. If Rivian manages to achieve this milestone, its valuation could significantly increase.
February 20th could bring significant news affecting Rivian's valuation, given its previous announcement about achieving gross profitability by the end of the fiscal year. Investors should closely watch Rivian's upcoming earnings report for any updates on its financial outlook.
