Is it time to back up your Rivian truck? (NASDAQ: REVIN)

We’ve previously covered Rivian Automotive (Nasdaq: Raven) in August 2023, to discuss its improved margins and expanded production/delivery numbers, demonstrating the stock’s compelling investment thesis despite an uncertain macroeconomic outlook.

While we rate the stock a Buy, we do He also urged patience and reiterated the recommended entry point of $15 to improve the margin of safety.

In this article, we will discuss RIVN’s high growth trend across its financial and production/delivery results, based on its outperformance over the past two quarters. Combined with the profound decline observed in its share prices, we maintain our Buy rating.

RIVN stock is cheap here, given its high growth trend

Currently, RIVN has posted double-digit earnings for Q3 FY2023, with revenue of $1.33 billion (+18.7% QoQ/+149.4% YoY) and EPS of -$1.19 (compared to Q2 levels 2023 which amounts to -$1.08 and the third quarter of the year). 22 levels -$1.57).

Although the average interest rate on auto loans on new cars rose by 7.51% in September 2023 (+0.11 points QoQ/+2.35 points YoY), compared to 2019 averages of 4.63%, the automaker was able to Recording expanded deliveries of 15.56K units (+23.1% QoQ/+136.4% YoY) as well.

How to finance an electric car

More importantly, RIVN was able to generate an impressive average sales price of $85.92K last quarter (-3.1% QoQ/+5.4% YoY) and improve gross margins by -35.7% (+1.1 points QoQ/+135.4 YoY) as its regular plant improves its production volume.

This lends further strength to the results of PWC’s automotive survey, where 60% of North American consumers chose to finance their electric vehicle purchases with cash, compared to 32% using loans.

The gap between RIVN production and delivery also narrowed to 4.6% (-5 points QoQ/-5.9% YoY) by Q4, albeit with higher inventory of $2.53 billion (+17.1% QoQ/+ 169.1% on an annual basis).

We expect fiscal Q4 2023 to deliver excellent numbers as well, given higher FY2023 production guidance of 54K units (+121.8% YoY), compared to previous guidance of 52K (+113.6% YoY) in an earnings call Q2 2023 and 50K guidance on Q4 2022 earnings call (+105.4% y/y).

In addition to the ongoing upgrades, it appears the automaker’s long-term production guidance of 150,000 per year isn’t overly aggressive either.

Additionally, we may see RIVN see improved profits going forward, thanks to closing its exclusive electric truck contract with Amazon (AMZN). This could allow the former to compete directly with Ford (F) Transit and General Motors (GM) BrightDrop models.

For example, F has already delivered 5.91K units of E-Transit (+14.7% YoY) and 106.19K units of Transit (+34.4% YoY) since the beginning of the year, indicating strong demand in Market on electric/ICE delivery trucks.

Consensus future estimates

As a result, we’re not surprised that the consensus still estimates that RIVN will deliver impressive revenue growth at a CAGR of +85% through fiscal 2025.

This is compared to its historical revenue of $55 million in fiscal 2021 and $1.65 billion in fiscal 2022, as the company only began producing and delivering vehicles in September 2021.

Unfortunately, RIVN has been unable and is unlikely to achieve profitability over the next few years, as similarly reflected in its financial report:

We are a growth-stage company with a limited operating history and history of losses and we expect to incur significant expenses and continuing losses for the foreseeable future.

With that information out of the way, readers who continue reading are likely very convinced RIVN investors, especially those made more attractive by the deep pullback.

However, a word of caution.

While the automaker may boast a strong cash position of $6.41 billion (-14.4% QoQ/-46.8% YoY), it otherwise has nearly $7.91 billion (if we include the 1.5% convertible green bonds billion), its lack of year-round profitability and the coming years involve a sustained trend of burning cash, diluting equity, and relying on debt.

RIVN Ratings

Right now, since RIVN has yet to report profitability, the only metric we might use to measure its valuation is a FWD EV/sales of 2.01x.

When compared to the sector average of 1.10x and legacy automakers, including Ford (F) at 0.93x/General Motors (GM) at 0.78x, it appears that RIVN stock may be trading at a premium valuation.

However, we think RIVN is actually cheap here, compared to its US-based EV peers, including Tesla (TSLA) at 6.84x and Lucid (LCID) at 10.52x.

This is particularly due to high sales growth expectations through FY2025, compared to TSLA’s FWD CAGR of +21.8% and LCID’s CAGR of +84.5%.

So, is RIVN stock a buy?Sell, sell, or hold?

RIVN 1Y stock price

Based on the chart above, it is clear that RIVN has regained most of its gains from the severe pandemic, with the stock currently retesting the critical $15 support levels.

Given the lower lows and lower highs since the July 2023 peak, it is not overly bearish to assume another retest of the all-time low at $12, which would imply a -19.6% decline from current levels.

On the one hand, due to the bullish factors discussed above, we are choosing to rate RIVN bullishly as a buy here, given that the stock has already returned to the previous recommended accumulation range of $15-$17.

On the other hand, with a short interest of 15.68%, the stock may remain volatile for the foreseeable future, depending on when the Fed turns around, market sentiment improves, and the cost of borrowing moderates.

Therefore, investors who add here should temper their near-term expectations, while sizing their portfolios according to their risk appetite.