Earlier than electrical SUV and pickup truck producer Rivian (Nasdaq: RIVN) went public in November 2021, I delivered a very clear message…
I stated, “Shopping for Rivian shares at this proposed valuation should absolutely be thought-about 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 actual fact, I believed (and nonetheless assume) that its electrical SUVs and pickup vans had been extraordinarily cool.
My drawback 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 in addition 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, widespread sense has taken over and Rivian’s inventory has collapsed by virtually 90%.
As a result of within the inventory market, valuation does matter finally.
However now one thing attention-grabbing has occurred.
Rivian’s whole 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 only 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 at this time is paying $13 for money that the corporate has and solely $0.49 for the Rivian electrical automobile (EV) enterprise, price roughly $1.7 billion.
That $1.7 billion valuation is fairly wild contemplating that buyers had been keen to pay $115 extra per share for this identical enterprise in 2021.
The query now could be whether or not paying simply $13.49 for a share of Rivian’s $1.7 billion electrical automobile enterprise is an effective deal.
This yr, the corporate is anticipating to promote 50,000 automobiles in whole.
The consensus analyst estimate is for that degree of gross sales to lead to virtually $4 billion of income. That’s good.
What’s not so good is that Rivian received’t even be near turning a revenue whereas promoting these automobiles and it’ll burn via a whole lot of money.
One analyst expects Rivian’s gross margins from promoting its automobiles to be destructive 68%. Ouch!
Final yr, Rivian’s money burn diminished the money that the corporate had on its steadiness sheet from greater than $18 billion to $12 billion.
Mark my phrases, there can be more money burn this yr… and it received’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 fee really price?
In its present state, the reply can be lower than nothing!
To be truthful, I do notice that that is an early-stage development firm and that early-stage losses are to be anticipated.
However on the fee that Rivian is burning via money ($6 billion final yr alone), the corporate doesn’t have a whole lot of time to get rid of that money burn and begin turning a revenue.
Rivian might nicely be capable to do this and go on to attain unimaginable issues.
There may be, nevertheless, little or no certainty of that taking place.
Regardless of that incontrovertible 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.