Nikola Stock Up 22% in March – Time to Buy NKLA Stock?

The price of Nikola stock has gone up more than 22% so far this month following positive news about the company’s manufacturing capacity that hinted at the firm possibly delivering hundreds of vehicles by the end of this year.

On 3 March, Nikola hosted two events – Investor Day and Analyst Day – in which it presented some of its advancements on multiple fronts and the management’s goals for the near future.

According to the Analyst Day presentation, Nikola started to manufacture its first BEV trucks on 21 March this year and expects to deliver around 300 and 500 vehicles by the end of the year in the United States first. In Europe, deliveries are expected to start in the third quarter of 2023.

The company defined its global total addressable market as a $600 billion mammoth with North America alone being estimated to be worth $128 billion including the sale of trucks, the production of hydrogen, and servicing.

The price of the TRE BEV model is expected to be around $300,000 per unit. According to its first estimates, gross margins are expected to stand at around minus 60% in 2022 while turning positive in 2023 to then rise to around 20% in subsequent years as production is scaled up.

The market reacted positively to the news as shares rose nearly 6% during yesterday’s stock trading session. It appears that, despite the company’s negative track record, some investors believe that Nikola can live up to these promises and estimates.

On 23 March as well, the company said that it signed an agreement with Alta Equipment Group to expand the territories in which Nikola’s vehicles are offered to include Arizona. The company had previously signed other agreements that gave Alta permission to distribute Nikola’s vehicles in New York, New Jersey, and New England.

What could be expected from this electric vehicle stock in light of these developments? In this article, I’ll be assessing the price action and fundamentals of Nikola stock to outline plausible scenarios for the future.

68% of all retail investor accounts lose money when trading CFDs with this provider.

Nikola Stock – Technical Analysis

The price of Nikola stock has been on a freefall since a negative article about the company from Hindenburg Research came out in September 2020 that led to the indictment of its founder and former Chief Executive Trevor Milton.

Since then, the company has been taken over by Mark Russell, a seasoned executive and the former Chief Operating Officer of another publicly-traded company – Worthington Industries (WOR).

The new management has been focused on developing, manufacturing, and delivering the company’s first vehicles by taking advantage of every resource available.

However, Nikola has not yet sold its first vehicle and the company’s past may continue to weigh on the stock’s performance until there is hard evidence that the management is living up to its promises.

So far this year, Nikola (NKLA) stock has shed 2.3% of its value as market participants have adopted a risk-off attitude amid an expected shift in macroeconomic conditions and geopolitical tensions including the Russia-Ukraine war.

Meanwhile, the stock is trading 50.5% below its 52-week high and 11.9% below its 200-day simple moving average.

Yesterday, trading volumes exceeded the 10-day average by nearly 4 times with a total of 62 million shares exchanging hands during the session.

At some point, the stock was gaining 19% but significant selling activity ended up pushing the price way lower to $9.66 with gains finishing the day at 5.7%.

Momentum readings have geared toward positive territory with the Relative Strength Index (RSI) standing at 65 (bullish) while the MACD has crossed above the signal line and is now standing in positive territory.

Currently, the price is tagging the upper trend line highlighted in the chart, which is in confluence with the 200-day simple moving average.

Moving forward, if the price breaks above this area, chances are that a rally could start for Nikola stock for as long as investors believe the underlying story that the company is about to start commercializing its vehicles this year.

Nikola Stock – Fundamental Analysis

Analysts from RBC Capital Markets wrote that the company is still facing “significant execution and technology risks” amid the young and “relatively unproven” nature of its technology. RBC also said that Nikola will need to invest around $700 million to meet its production goals.

In 2021, the company reported total operating losses of $693.52 million along with adjusted EBITDA of $302.74 million. During that same period, negative free cash flows ended at $486.42 million. Meanwhile, the company reported total cash and equivalents of $497.24 million.

Using some of the figures provided by Nikola in its Analyst Day presentation, by selling 500 units the company would generate negative gross profits of around $90 million. Moreover, if RBC’s estimates of $700 million in capital expenditures in 2022 turn out to be true, the firm’s cash burn during the year would significantly exceed its reserves.

Therefore, achieving the management’s goals this year seems to depend on its ability to raise a significant amount of fresh capital, possibly by selling shares of the company. With this in mind, dilution risks seem rather high at the moment.

In addition, in 2022, Nikola must pay two installments of a $125 million fine imposed by the Securities and Exchange Commission (SEC) as part of a settlement reached with the agency for violations of the Securities Exchange Act of 1934.

Considering the company’s exceptionally disappointing track record from when the business was led by Milton, investors should approach this stock with caution as many things can still go wrong including legal setbacks resulting from ongoing class-action lawsuits against Nikola.

Buy NKLA Stock at eToro with 0% Commission Now!