In December 2021, Morgan Stanley's Adam Jonas gave EV maker Rivian (RIVN) an outperform rating and a price target of $147.
Rivian is “the one,” he maintains, that has the greatest potential to be a serious challenge to Tesla. His latest assessment came in a March 25 note that conceded Fiscal 2022 has been "challenging," especially in regard to ramping up production.
Jonas, however, isn’t throwing in the towel and says despite bottlenecks, growing pains, and a sharp stock decline – these "reality checks" haven’t dissuaded him in his overall confidence in Rivian's strategy.
So, is Jonas an incurable optimist? Or does his experience give him a perspective that others lack?
Let’s start with some facts. Rivian is an EV startup located in Irvine, California, that went public in November 2021. Back then, the stock was priced at $78 per share, but it has progressively slid after hitting a surprise post-IPO high of $180 per share.
Yes, the price of Rivian stock has declined 51% this year as the markets have adopted a risk-off attitude.
That said, there are more than enough reasons to keep the faith. Rivian has set ambitious 2022 plans to produce up to 25,000 vehicles. According to its most recent financial report, a total of 2,425 units have been manufactured as of March 8, but the ramping up process – according to the company – is moving at pace, and there are hints this Amazon-backed EV startup could experience a turnaround in its stock price in the following months.
I am neutral on the stock.
Rivian Stock: A Technical OverviewFrom a technical perspective, Rivian has broken multiple areas of support since the company went public, and this favors a bearish outlook unless the price action reclaims some of that lost territory.
In February, the Soros Fund Management, the hedge fund founded and run by billionaire investor George Soros, stood out among the most important backers of the EV startup after purchasing 20 million shares of the company during the fourth quarter of 2020.
Prominent institutional backers like Soros tend to propel the stock price as they usually validate other investors who might have been waiting on the fences while assessing the merits of the investment.
Moreover, the company recently appointed a new chief operations officer who will be in charge of overseeing the development and growth of the company’s manufacturing capabilities.
Despite these positive developments, the risk-off attitude prompted by the armed conflict between Ukraine and Russia could lead to further declines in Rivian stock as market sentiment continues to be relatively sour toward risky assets.
Momentum indicators have climbed to higher levels with the Relative Strength Index (RSI) moving near the 50 level for the first since December, while the MACD has crossed above the signal line.
Moving forward, investors should keep an eye on the $50 level as a break above this threshold could indicate that the trend is reversing for Rivian stock. However, it will only be a move above the $70 level that would confirm a full-blown trend reversal in the near term.
Rivian FundamentalsOn March 10, Rivian reported its financial results covering Q4 and FY 2021.
Sales during the fourth quarter landed at $54 million with a total of 909 vehicles being delivered during the three months ended on December 31. In total, the company delivered 920 vehicles in 2021, and produced $55 million in sales.
Operating losses for the quarter landed at $2.45 billion, while annual operating losses ended at $4.22 billion. Net losses accelerated to $2.46 billion during the quarter, and $4.69 billion during the entire year.
The firm reported long-term debt of $1.23 billion along with $218 million in lease liabilities. Total assets stood at $22.29 billion including $18.13 billion in cash and equivalents.
Net operating cash flows were negative in 2021 with the company burning through $2.62 billion while capital expenditures ended at $1.79 billion, as Rivian kept investing to expand its manufacturing capacity rapidly.
Rivian’s cash reserves seem sufficient for the company to stay afloat over the next couple of years. Some of that money will have to be used for the construction of another plant in Georgia – a project that the company has already announced – and further expansion of the Normal, Illinois, manufacturing facility to the point that it can produce up to 200,000 units per year.
In 2022, Rivian management expects to produce 25,000 vehicles and generate an adjusted EBITDA loss of $4.75 billion, along with capital expenditures of $2.6 billion.
Wall Street's TakeDespite some of the challenges that the firm currently faces, Wall Street remains optimistic about the company’s future as indicated by analysts’ consensus rating for the stock – which is Moderate Buy.
The average Rivian price target is $76.08, suggesting 51.4% upside potential. The highest estimate for the stock stands at $130, and the lowest at $35.
No analyst has rated the stock a Sell and this points to the fact that market participants are expecting a lot from this EV startup. This is not something investors should ignore, as these financial services firms tend to draft their predictions based on insightful industry-specific data.
Moving forward, Rivian remains a promising player in the EV landscape due to its partnership with Amazon (AMZN) to produce vehicles that empower the giant shipping fleet of the e-commerce giant. An order for 100,000 vehicles from the company founded by Jeff Bezos remains in play.
The recent decline in the stock price has brought down the valuation to a point that some investors might consider appealing, as the firm has already proven that its vehicles are functional and live up to the technical promises made by management.
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Shares of food delivery service provider DoorDash (DASH) have been steadily climbing back from the brutal crash endured over the last few months.
With a ~70% fall from peak to trough now behind it, DoorDash has some intriguing catalysts on the horizon that could extend its recent relief rally. After surging over 55% from its March bottom of around $74 per share, shares are currently sitting at $116 and change per share, thanks in part to the broader rally in unprofitable and expensive speculative tech stocks.
While nothing has changed about DoorDash's lack of GAAP profits, I do think the risk/reward has become much better, even as the company continues facing difficult comparisons year-over-year as pandemic tailwinds fade.
Although the reopening of the economy is perceived as a terrible thing for food-delivery firms like DoorDash or Uber (UBER) Eats, I think many are severely discounting the staying power of both services in the post-pandemic environment. Further, both firms have a realistic onramp towards profitability that may not be as far off as some skeptics expect.
Recent Headwinds May Be OverblownDoorDash has seen its pandemic tailwinds be replaced by post-lockdown headwinds in what seemed like an instant. Surging oil prices and labor woes are just a few of the recent headwinds facing DoorDash and Uber. Although they are real negatives, they seem more transitory in nature and are likely to pass over the coming weeks and months as conditions look to normalize.
In any case, I am turning bullish on shares of DoorDash amid its recent relief rally. The stock seems way too cheap at 8.3 times sales. Further, DoorDash has shown that it's leading the charge in the local logistics market.
Food Delivery Service Demand Could Outlast the PandemicUndoubtedly, one of the biggest deterrents for those looking to invest in food delivery companies is the potential for decaying demand in a post-pandemic environment. When everybody is returning to the physical realm, fewer people will be ordering food via DoorDash.
The great economic reopening seems unstoppable at this point. Still, I think it's a mistake to conclude that DoorDash will suffer the same fate as another pandemic beneficiary like Peloton (PTON), which crumbled violently, shedding over 88% of its value from peak to trough under the intense selling pressure. Indeed, it was a sharp and sudden reversal of fortunes for the bid-up pandemic stocks.
The at-home consumer only has enough room in the house for so many stationary bikes or treadmills. Arguably, they have a massive appetite for food delivered hot and on time, even as it becomes safer to venture outside again.
In its latest quarter, DoorDash revealed robust demand for food delivery. It's not falling nearly as fast as you'd think. Why? Locked-down consumers have made ordering food a habit over the course of a year and a half.
Although restaurants are now increasing capacity, many still can't get enough of the convenience offered by the food delivery firms. It's sticky — far stickier than I would have thought going into DoorDash's fourth quarter.
Demand for Food Delivery? It's Still RobustGross order volumes for Q4 rose 36% year-over-year and 7% sequentially. That's impressive, especially in the face of less-favorable year-over-year comparables. Still, investors just are not happy with stocks that aren't making considerable sums of cash with rates on the rise.
Moving ahead, we'll find out just how sticky DoorDash's services are, as the reopening takes it to the next level. Suppose demand remains robust, and DoorDash helps its couriers navigate through nearer-term headwinds (like higher prices at the pump). In that case, the company seems well on its way to becoming a sustainably profitable company at some point over the next two years.
What about the Odds of a Recession?Although DoorDash can add to its strengths from the pandemic, the major sore spot could be what happens if the economy falls into a downturn. Worse, stagflation could deter many from paying up for the convenience of food delivery, incentivizing money-saving alternatives like grocery shopping and creating one's own food.
Currently, a U.S. yield curve inversion (a top recession signal) seems imminent. Though, a soft landing cannot be ruled out, given the U.S. Federal Reserve's previously dovish sentiment. Such a soft landing could be less detrimental to a firm that offers "nice-to-have" services like food delivery. Still, a prolonged "hard landing" could prove detrimental to such a discretionary service provider.
DoorDash: Still Leading the Charge in InnovationFinally, DoorDash is still innovating, which should help it retain its strong network effects in the face of new rivals. In the competitive business of food delivery, people want selection, but more importantly, they want their food as fast as possible.
DoorDash already has its selection down, with a large number of restaurant chains aboard. Now, DoorDash wants to cut its delivery times and disrupt grocery delivery with the Ultra-Fast Grocery effort in New York.
Such ultra-fast delivery, which cuts down delivery to 15 minutes or so, could raise barriers significantly for competitors. If DoorDash invests heavily in such ultra-fast delivery services, I wouldn't be surprised if it pulled an Amazon (AMZN) by squeezing out rivals at the expense of near-term margins en route to a more dominant market share.
Wall Street's TakeTurning to Wall Street, DASH stock comes in as a Moderate Buy. Out of 16 analyst ratings, there are nine Buy recommendations and seven Hold recommendations.
The average DoorDash price target is $164.21, implying an upside potential of 40%. Analyst price targets range from a low of $118.00 per share to a high of $230.00 per share.
The Bottom Line on DoorDash StockThere's a lot to love about DoorDash, including its valuation. It's still innovating, and early signs show that food-delivery demand is far more resilient coming out of the worst of pandemic lockdowns.
With a lot of innovation going on behind the scenes, I'd give DoorDash the benefit of the doubt. It has staying power and a realistic ramp into the realm of GAAP profitability.
Pending a recession or stagflationary environment, DoorDash seems like a convenience that's hard to pass up come dinner time for those with ample discretionary income.
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