Electric vehicles (EV) manufacturer Rivian Automotive, Inc. (RIVN) in Irvine, Calif., made its public market debut under the ticker "RIVN" on November 10 at an initial offering price of $78.00. RIVN’s market value hit $127.30 billion at the close of trading on November 12, just three days after it went public. However, its shares slumped nearly 15% in price last Friday to hit the lowest level since its IPO, after the company cited operational disruptions that could hinder its production plans. Due to supply chain disruptions, the company expects its production to fall "a few hundred vehicles short" of its 2021 target of 1,200. RIVN’s pre-orders for its pickup R1T and special utility vehicle R1S were 71,000 units, up from October, but according to some analysts, it is on the low end of expectations.

Furthermore, given the production challenges, the company could struggle in building volumes as demand rises. "The strong order book provides support for the production ramp, though it does add pressure to get vehicles to customers that may get impatient as current R1 orders won't be ready until the end of 2023," according to Wells Fargo analyst Colin Langan.

Over the past five days, RIVN stock has slumped 21.8% in price to close its last trading session at $96.82. The stock has been down 30% for the past month. However, it climbed 7.6% in yesterday’s trading session in part on Senate Majority Leader Charles Schumer’s optimistic comment that the Senate would try to hold a re-vote early next year to pass the potential Build Back Better bill. If passed, the bill, with considerable provisions to boost the EV industry, could benefit RIVN, but uncertainty remains. In addition, the EV startup plans to start building its EV plant in Georgia next summer, and the facility will be capable of producing up to 400,000 vehicles per year. However, production is not expected to commence until 2024.

Click here to checkout our Electric Vehicle Industry Report 

Here is what could shape RIVN’s performance in the near term:

Stretched Valuation

In terms of forward EV/Sales, RIVN is currently trading at 1,480.43x, which is 105,777.8% higher than the 1.40x industry average. Also, its 1,277.35 forward Price/Sales ratio is 113,994.7% higher than the 1.12 industry average RIVN’s 3.89x forward Price/Book is 19.5% higher than the 3.26x industry average.

Weak Financial Position

RIVN’s loss from operations increased 169.4% year-over-year to $776 million in its fiscal third quarter, ended September 30. Its net loss stood at $1.23 billion, up 328.1% from the same period last year, while its adjusted EBITDA came in at a negative $727 million, indicating a 158.7% decline year-over-year. Its net loss per share attributable to common stockholders came in at $12.21, up 324% from the prior-year quarter. Its non-GAAP free cash flow declined 165.3% year-over-year to a negative $1.15 billion. In addition, its net cash used in operating activities increased 164.8% from its prior-year quarter to $1.54 billion.

POWR Ratings Reflect This Bleak Prospects

RIVN has an overall D rating, translating to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of D for Stability, consistent with its 2.36 beta.

RIVN has a D grade for Value. Its stretched valuations justify this grade.

Of 67 stocks in the F-rated  Auto & Vehicle Manufacturers industry, RIVN is ranked #40.

Beyond what I have stated above, one can also view RIVN’s grades for Sentiment, Growth, Momentum, and Quality here.

View the top-rated stocks in the Auto & Vehicle Manufacturers industry here.

Bottom Line

RIVN is an emerging EV maker, with prominent expansionary policies and impressive production targets. However, the company highlighted supply chain constraints in its latest quarterly report and posted significant losses for the quarter. Analysts expect its EPS to remain negative at least until the next year. Furthermore, its EPS is expected to decline 99.9% per annum over the next five years. Also, its recent IPO could make the stock extremely volatile. So, given its bleak near-term prospects, we think RIVN is best avoided now.

How Does Rivian Automotive, Inc. (RIVN) Stack Up Against its Peers?

While RIVN has an overall POWR Rating of D, one might want to consider investing in the following Auto & Vehicle Manufacturers stock with an A (Strong Buy) rating: Mazda Motor Corporation (MZDAY).

Click here to checkout our Electric Vehicle Industry Report

RIVN shares were unchanged in premarket trading Wednesday. Year-to-date, RIVN has declined -3.88%, versus a 25.50% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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