London-based  electric vehicles (EV) manufacturer Arrival (ARVL) recently announced a Service Network Program that will use its digital Service Platform to train and certify any technician to service its vehicles. However, the shares of ARVL declined 25% in price on November 9, 2021, after the company announced a weak outlook for 2022. In addition, the company said that its previous long-term forecasts from the merger should no longer be relied upon. It is also selling equity and debt to raise funds.

The stock has declined 39.1% in price over the past month to close yesterday’s trading session at $8.93. Also, it is currently trading 76% below its all-time high of $37.18, which it hit on December 7, 2020.

Moreover, the entire electric vehicle industry is facing severe semiconductor chip and labor shortages, which could hamper the company’s already delayed production plans. And rising competition in the EV space along with ARVL’s weak financials so far make its near-term prospects bleak.

Click here to checkout our Electric Vehicle Industry Report for 2021

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

Disappointing Financials

For its fiscal third quarter, ended September 30, 2021, ARVL’s operating loss grew 123% year-over-year to $45.96 million. The company’s adjusted EBITDA loss for the quarter increased 118.1% year-over-year to $39.56 million. In comparison, its net loss came in at $26.39 million, up 18.2% year-over-year.

Ongoing Investigations

A law firm is investigating potential claims against ARVL on concerns related to whether Arrival and certain of its officers and/or directors have engaged in securities fraud or other unlawful business practices. It is alleged that the company has revised its Micro factory rollout and now expects significantly lower vehicle volumes and revenue in 2022.

Selling Shares

On November 24, 2021, ARVL announced the sale of 37.23 million shares in a secondary offering, which included the full exercise by the underwriters of their option to purchase an additional 4.86 million ordinary shares. This offering dilutes the wealth of existing shareholders.

Stretched Valuation

In terms of forward P/B, ARVL’s 6.91x is 84.9% higher than the 3.74x industry average.  Similarly, its 22.37x forward P/CF is 73.7% higher than the 12.88x industry average.

Low Profitability

ARVL’s trailing-12-month ROCE, ROTC, and ROTA are negative compared to the 17.64%, 7.81%, and 6.16% respective industry averages.

POWR Ratings Reflect Bleak Prospects

ARVL has an overall D rating, which equates to a Sell in our POWR Rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ARVL has a D grade for Value, which is in sync with its higher-than-industry valuation ratios.

The stock has a C grade for Quality, which is in sync with its lower-than-industry profitability ratios. In addition, ARVL has a C grade for Growth and Sentiment. This is justified because analysts expect its EPS to decline 69.7% in the current quarter, 85.9% next quarter, and 510.9% in the current year.

Furthermore,  ARVL has a C grade for Momentum, which is consistent with its 68.2% loss year-to-date and 64.9% decline over the past year.

ARVL is ranked #43 of 63 stocks in the F-rated Auto & Vehicle Manufacturers industry. Click here to access ARVL’s ratings for Stability also.

Click here to check out our Automotive Industry Report for 2021

Bottom Line

ARVL is currently trading below its 50-day and 200-day moving averages of $14 and $16.57, respectively, indicating a downtrend. Also, given that the company’s capital shortage is forcing it to delay production, we think the stock looks overvalued at its current price level. So, it is best avoided now.

How Does Arrival (ARVL) Stack Up Against its Peers?

While ARVL has an overall POWR Rating of D, one might want to consider investing in the following Auto & Vehicle Manufacturers stocks with an A (Strong Buy) or B (Buy) rating: Mazda Motor Corporation (MZDAY), BRP Inc. (DOOO), and Daimler AG (DDAIF).

Click here to checkout our Electric Vehicle Industry Report for 2021

ARVL shares were trading at $9.48 per share on Wednesday afternoon, up $0.55 (+6.16%). Year-to-date, ARVL has declined -66.29%, versus a 26.59% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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