Earlier than electrical SUV and pickup truck producer Rivian (Nasdaq: RIVN) went public in November 2021, I delivered a really clear message…
I mentioned, “Shopping for Rivian shares at this proposed valuation should absolutely be thought of hypothesis, and I wouldn’t name it a sensible play.”
In different phrases, keep far, distant!
It wasn’t that I didn’t like Rivian’s merchandise. In reality, I believed (and nonetheless suppose) that its electrical SUVs and pickup vans have been extraordinarily cool.
My downside was with the corporate’s inventory market valuation. I believed it was ludicrously excessive.
At the moment, Rivian not solely had by no means turned a revenue but additionally had by no means even earned any income!
Not a dime!
Regardless of that, Rivian was concentrating on an preliminary valuation of near $80 billion.
The hype round Rivian going public had created a nonsensical inventory market valuation.
Since then, the hype has lessened, frequent sense has taken over and Rivian’s inventory has collapsed by virtually 90%.
As a result of within the inventory market, valuation does matter ultimately.
However now one thing attention-grabbing has occurred.
Rivian’s complete inventory market valuation is now virtually equal to the amount of money that the corporate has on its steadiness sheet.
On the finish of 2022, Rivian was sitting on $12 billion in money, which equates to simply over $13 per share.
In the meantime, Rivian shares now commerce for simply $13.49 as of this writing.
Which means anybody shopping for shares of Rivian right this moment is paying $13 for money that the corporate has and solely $0.49 for the Rivian electrical car (EV) enterprise, price roughly $1.7 billion.
That $1.7 billion valuation is fairly wild contemplating that traders have been prepared to pay $115 extra per share for this similar enterprise in 2021.
The query now’s whether or not paying simply $13.49 for a share of Rivian’s $1.7 billion electrical automotive enterprise is an efficient deal.
Not like in late 2021 – when Rivian had by no means generated a dime of income – now the corporate is promoting fairly just a few EVs.
This 12 months, the corporate is anticipating to promote 50,000 automobiles in complete.
The consensus analyst estimate is for that degree of gross sales to end in virtually $4 billion of income. That’s good.
What’s not so good is that Rivian gained’t even be near turning a revenue whereas promoting these automobiles and it’ll burn by a variety of money.
One analyst expects Rivian’s gross margins from promoting its automobiles to be destructive 68%. Ouch!
Final 12 months, Rivian’s money burn decreased the money that the corporate had on its steadiness sheet from greater than $18 billion to $12 billion.
Mark my phrases, there will likely be more money burn this 12 months… and it gained’t be insignificant.
So whereas we aren’t paying a lot for the Rivian EV enterprise proper now, how a lot is a enterprise that destroys money at this charge truly price?
In its present state, the reply could be lower than nothing!
To be truthful, I do understand that that is an early-stage progress firm and that early-stage losses are to be anticipated.
However on the charge that Rivian is burning by money ($6 billion final 12 months alone), the corporate doesn’t have a variety of time to remove that money burn and begin turning a revenue.
Rivian might properly be capable of try this and go on to realize unimaginable issues.
There’s, nonetheless, little or no certainty of that occuring.
Regardless of that proven fact that Rivian shares commerce near the worth of the money on the corporate’s steadiness sheet, The Worth Meter sees this inventory as being no higher than “Appropriately Valued.”
I want the corporate luck and would fortunately drive one these cool SUVs… however I cannot be proudly owning any Rivian shares.
