Fisker Inc. (FSR), a Manhattan Beach, Calif.-based EV manufacturing company, went public last year through a reverse merger with Spartan Energy Acquisition Corporation, backed by private equity firm Apollo Global Management. The stock began trading on October 30, 2020 and jumped nearly 13% in price on its market debut.

However, closing yesterday’s trading session at $18.89, the stock is trading 40.9% below its 52-week high of $31.96, which it hit on February 2, 2021, indicating a downtrend.

In addition, concerns over the global semiconductor chip shortages’ effect on the EV industry may keep the stock under pressure in the near term. Furthermore, given the stock’s steep valuation and the company's weak financials, we think it could be a risky bet.

Click here to checkout our Electric Vehicle Industry Report for 2021

Here is what could influence FSR’s performance in the upcoming months:

Chip Shortage Could Dampen Growth

The shortage of semiconductor chips required to manufacture various electronic items, ranging from automobiles to laptops, has been an issue for several months now. The  chip shortage l has gotten so bad  that it is on course to outlive the lockdowns and closures that precipitated the shortage in the first place. On Tuesday, U.S. Commerce Secretary Gina Raimondo called on Congress to fully fund a plan to boost U.S. semiconductor production to address the global scarcity of the essential component.

EV manufacturers are scaling back operations as production costs skyrocket due to increased semiconductor chip prices. Consequently, the revenue and earnings growth for many EV companies, including FSR, are expected to be curbed in the coming quarters.

Inadequate Financials

FSR’s operating expense surged year-over-year to $109.56 million for the third quarter, ended September 30, 2021. Its operating loss came in at $109.57 million. The company reported a $109.84 million net loss , while its loss per share amounted to $0.37 over this period. In addition, its net cash used in operating activities increased substantially from its  year-ago value to $103.45 million.

Poor Profitability

FSR’s 26.6%  trailing-12-months gross profit margin is 25.88% lower than the 35.8% industry average. Also, its ROA and ROC are negative 25.3% and 18.3%, respectively. Furthermore, its trailing-12-months cash from operations stood at negative $190.44 million compared to the $195.68 million industry average.

POWR Ratings Reflect Bleak Prospects

FSR has an overall F rating, which equates to Strong Sell in our proprietary POWR Ratings system. The POWR ratings are calculated 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. FSR has a D grade for Value and Quality. The company’s higher-than-industry valuation justifies the Value grade. In addition, the company’s weak profitability is in sync with the Quality grade.

The stock also has a C for Growth which is consistent with the company’s poor financials in its last reported quarter.

Of the 62 stocks in the C-rated Auto & Vehicle Manufacturers industry, FSR is ranked #53.

Beyond what I have stated above, one  can view FSR ratings for Stability, Momentum, and Sentiment here.

Bottom Line

FSR’s weak financials and poor profitability pose a significant threat to the stock’s future performance. Furthermore,  due to the current  semiconductor chip shortage and manufacturing cutbacks, it may take a few years for the company to generate a consistent revenue stream. Thus, we believe FSR is best avoided now.

How Does Fisker Inc. (FSR) Stack Up Against its Peers?

While FSR has an overall F rating, one might want to consider its industry peers, Suzuki Motor Corporation (SZKMY), Isuzu Motors Limited (ISUZY), and Honda Motor Company Ltd. (HMC), having an overall A (Strong Buy) rating.

Click here to check out our Automotive Industry Report for 2021

FSR shares were trading at $20.44 per share on Thursday morning, up $1.55 (+8.21%). Year-to-date, FSR has gained 39.52%, versus a 25.47% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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