Why Rivian Shares Might Be a Bargain
Investing in a company can become complicated when the market decides a stock is unfavorable. In such scenarios, it often becomes clearer to see potential buying opportunities when market sentiment shifts. A perfect example of this is Tesla, which faced substantial valuation drops before its share price skyrocketed.
Imagine if you had the chance to buy Tesla shares in 2020 for $35 each. Today, they trade at approximately $250 per share, reflecting a meteoric rise. Back then, however, it wasn’t as obvious to invest in Tesla; the company was grappling with production challenges and a market rife with skepticism. Despite a tough year, Tesla’s sales eventually took off, leading to a current market cap exceeding $800 billion. Investors who remained patient were rewarded as the company transitioned from a niche EV maker to a dominant brand seen on nearly every road in America.
Rivian’s Position in the EV Market
Rivian is now in a position similar to where Tesla was in its earlier years. With sales in the billions and flagship luxury models like the R1T and R1S, Rivian is poised for potential growth. The key difference between the two companies today is that Tesla has multiple mass-market vehicles, such as the Model Y and Model 3, allowing it to become a household name.
Currently, Rivian lacks the positive gross margins and stable cash balance that Tesla has achieved. However, this difference could present an attractive opportunity for investors. Rivian trades at less than two times sales, while Tesla’s shares trade at around ten times sales. Market skepticism regarding Rivian is understandable, as the electric vehicle sector has seen its fair share of failures.
Future Prospects for Rivian
Looking ahead, Rivian’s management team aims to achieve positive gross margins while launching three new mass-market vehicles: the R2, R3, and R3X, all priced under $50,000. If Rivian can meet these targets, the company may begin to see a positive shift in market perception, making its current valuation an enticing opportunity for risk-tolerant investors.
Navigating Stock Volatility
Rivian shares have been volatile, dropping nearly 90% from their all-time highs since the IPO. This volatility highlights the wisdom of employing a dollar-cost averaging strategy, which involves purchasing a fixed dollar amount of the stock at regular intervals—say, $100 every two months. This approach mitigates the risks associated with timing the market and can benefit your portfolio during temporary dips in stock price.
Could Rivian replicate Tesla’s extraordinary growth? While there are many challenges ahead, the compelling valuation at less than two times sales creates an attractive proposition for potential investors. Just be prepared for the inherent volatility and remain ready to increase your position during unexpected downturns.
