It’s amazing, the way financial traders can dislike a stock for a while but then change their minds in a matter of weeks or even days. This seems to be the case with electric vehicle manufacturer Rivian Automotive (NASDAQ:RIVN), as RIVN stock is quickly becoming a darling of the market.
We’re still assigning a grade of “D” to the stock, however, as the bearish argument hasn’t just suddenly evaporated.
This certainly isn’t a prediction that Rivian Automotive will collapse. It’s only a call for caution amid an abrupt and possibly extreme sentiment change.
In the final analysis, just be sure to learn all the relevant facts – some of which aren’t positive – before hastily investing in Rivian Automotive.
Positive News Has Been Priced Into RIVN Stock
After many consecutive unprofitable quarters for Rivian Automotive, any piece of good news can get overblown in investors’ minds. In reality, no miracles occurred even though RIVN stock recently catapulted from $13 and change to $26.
That’s right – the share price practically doubled in less than a month’s time. Does this mean Rivian Automotive is actually twice as valuable as it was a month ago? Not likely, but short-term sentiment can distort asset prices.
Apparently, financial traders were prepared to ignore Rivian’s long-standing lack of profitability. The automaker produced 13,992 vehicles and delivered 12,640 vehicles during 2023’s second quarter. This puts Rivian on track to potentially produce 50,000 EVs this year.
However, there’s certainly no guarantee that Rivian Automotive will achieve that production goal. Besides, deliveries lead to revenue, not production.
Even if Rivian produces 50,000 vehicles in 2023, that won’t necessarily get the company any closer to profitability.
Rivian Automotive Has a Legal Problem
Nevertheless, RIVN stock traders bid the price up as if Rivian Automotive is somehow guaranteed to succeed in 2023’s second half. And, making assumptions in the financial markets is a dangerous habit.
Meanwhile, there’s a negative development concerning Rivian Automotive that many traders are conveniently ignoring. Yet, this is a story that can’t just be swept under the rug.
According to a Reuters report, Josephine Staton, a U.S. district judge in Los Angeles, ruled that Rivian Automotive “must face a lawsuit claiming it defrauded shareholders during and after” the automaker’s 2021 initial public offering (IPO). Clearly, this won’t help Rivian Automotive’s reputation at all.
Rivian Automotive is accused of allegedly engaging in “concealing that had underpriced its electric vehicles, leading to unpopular price hikes.”
There’s no way to predict how this lawsuit will play out. However, not long after the company’s IPO, Rivian Automotive founder and CEO R. J. Scaringe did reportedly apologize and admit to the customers, “[W]e broke your trust.”
Trust is difficult to regain, and this legal action is a reminder that Rivian Automotive’s problems haven’t just vanished. Even if RIVN stock caught a bid, that price move isn’t an all-clear for cautious investors in 2023.
RIVN Stock Could Cough Up Its Gains
It may be tempting to get swept up in the positive sentiment surrounding Rivian Automotive now. Yet, being a price chaser isn’t the ideal strategy. Don’t assume that share-price momentum is the same thing as operational success.
In addition, the market is largely ignoring Rivian Automotive’s legal and reputational issues.
All in all, it feels like too many investors are cheering Rivian Automotive’s quarterly production number while ignoring the automaker’s ongoing problems. Therefore, RIVN stock gets a “D” rating and isn’t a confident EV-market pick for 2023’s second half.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
