Arrival Stock Down 15% Today – Time to Buy ARVL Stock?

The price of Arrival stock is dropping 15% today in pre-market stock trading action following news that the company will be selling 25 million ordinary shares along with an option granted to the underwriters to purchase another 3.75 million shares as part of the firm’s efforts to shore up its balance sheet.

This announcement came out on the same day that the company announced that it will be raising up to $230 million in capital through the issuance of green convertible senior notes. The definite terms of these notes have not been finalized, the company informed.

The proceeds from these senior notes will be used to further develop the company’s technology to power its electric vehicles while they could also be tapped to strengthen its manufacturing capabilities.

Back on 9 November, the company reported wider than expected losses of EUR 26.4 million during the third quarter of its 2021 fiscal year compared to EUR 22.3 million the firm shed during the same period a year ago.

Meanwhile, its headcount doubled to 2,400 employees during that same period and its cash position increased to EUR 381 million compared to EUR 67 million the firm had a year ago.

What can be expected from this electric vehicle startup in the future? In this article, I’ll be analyzing the price action and fundamentals of Arrival stock to possibly answer that question.

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Arrival Stock – Technical Analysis

The price of Arrival stock has been on a pronounced downtrend since December last year, back when the stock reached an intraday all-time high of $37.2 per share. Currently, the stock is trading nearly 65% below that price and today’s pre-market downtick would push the negative performance to almost 70%.

Trading volumes on the day that the firm’s Q3 2021 earnings report came out jumped significantly as the share price declined nearly 30% on that single day with a total of 11.2 million shares exchanging hands on back then – a figure that exceeded the 10-day average by around 6 times.

As a result, the price is now decisively dropping below its short-term moving averages and today’s pre-market action would further push ARVL stock down the drain.

Momentum oscillators are pointing to a bearish outlook as the Relative Strength Index (RSI) stands at 41 – bearish – while the MACD is dropping to negative territory. This move is being accompanied by steadily increasing negative histogram readings.

All things considered, if the pre-market decline spills over to the opening, the stock would be breaking below a key horizontal support found at $12 per share and that would clear the way for a more pronounced decline toward the trend line support shown in the chart at around $7.5 per share.

This would result in a total downside risk of around 43% based on yesterday’s closing price of $13.25 for ARVL stock.

Arrival Stock – Fundamental Analysis

Arrival is a pre-revenue company that has not yet been able to commercialize a working product. According to the comments made by the management team as part of the Q3 2021 earnings report, arrival has revised its forecasts for both vehicle volumes and revenue for 2022 as a result of headwinds related to the rollout of its microfactories.

Bus and van production volumes for next year will be “modest”, the company stated, and the firm does not expect to operate at full capacity until the first few quarters of 2023. Meanwhile, the firm will start to recognize some revenues during the second half of 2022. The firm had EUR 46.36 million in prepayments from clients by the end of the third quarter of 2021.

During the nine months ended on 30 September this year, the firm burned nearly EUR 300 million in cash while its negative EBITDA ascended to EUR 1 billion. Meanwhile, after excluding some non-recurring items including the expenditures incurred to take the company public, Arrival’s negative adjusted EBITDA more than doubled to EUR 101.45 compared to the minus EUR 44.14 million figure reported during the first nine months of 2020.

The sale of these 28.75 million shares along with the convertible notes the company expects to issue may inject a total of around $500 to $600 million to the firm before transaction costs are deducted and this will give Arrival enough resources to keep sustaining its operations for the foreseeable future.

However, even though the firm’s market capitalization will be declining to around $7 billion if today’s pre-market downtick spills over to the live session, the price tag for a firm that still has a tough road ahead to start delivering its first operating vehicles seems particularly high.

That said, the risk of further dilution seems limited now that the company will be able to secure the funding it needs to remain afloat for at least two years or more without delivering any vehicles.

All things considered, the valuation is high and that creates room for further volatility down the road. Meanwhile, the stock’s technical setup is quite worrying, and the downside risks are too high to justify taking a long position in Arrival stock at the moment despite the severity of the latest downtrend.

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