Should you buy Nikola stock?

Nikola stock analysis. NKLA stock.
Discover under-the-radar stocks: https://www.overlookedalpha.com

In July 2021, Nikola founder Trevor Milton was indicted on 3 counts of securities and wire fraud.

Milton had said that his Nikola One truck was fully functional. A promo video showed It speeding along a highway. But we found out later the truck was only moving because it was rolling down a hill.

Milton resigned but a lot of damage was done. The company’s plan to build out a network of fueling stations was in tatters and the stock collapsed.

In fact, since hitting a peak of $93 dollars in 2020 the stock has fallen 98% and is hovering at just over $1.30.

That gives the company a current market cap of 916 million dollars. With 121 million of cash on the balance sheet and 300 million of debt, the enterprise value is roughly 1 billion.

Revenue over the last 12 months was only 61 million dollars. But after re-organizing its business and embarking on a series of partnerships, revenue should finally start to grow.

According to company reports, Nikola expects to deliver almost 500 vehicles in 2023 which could add another $100 million to revenue before embarking on more productive 2024.

The problem, however, is that Nikola is nowhere close to profitable. It burned 232 million in the first quarter and over 800 million over the last 12 months. With only 121 million of cash remaining, the company is a clear bankruptcy risk and recent SEC filings contain the so-called “going concern” warning.

The only way out for Nikola is to raise more cash by selling equity. But a market cap of only $1 billion makes that difficult because it would crash the stock price even further. And a proposal last week to issue more shares looks like it could fail to get enough votes from shareholders.

Even if Nikola cuts staff, sells its inventory, and ramps up fuel cell deliveries, the company needs at least $500 million to get through the next 8 quarters. Delaware legislators could change the corporate law which could potentially allow Nikola to sell more equity but even so the company has a narrow path to survive.

That said, at such a low share price and with such a high short interest, it’s not a good idea to short the stock outright.

#stocks #investing #nikolastock #stockstowatch