Down 17% in First Week of 2022, Rivian Stock Looks Extremely Undervalued

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Driven by macro issues and a deal between Amazon (NASDAQ:AMZN) and Stellantis (NYSE:STLA), Rivian Automotive (NASDAQ:RIVN) stock has dropped significantly lower than I thought it would. In a Dec. 24 column, I predicted that the shares probably would not drop below $95. Investors proved me wrong last week, ultimately driving the RIVN stock price down to $86.28 a share.

Source: Miro Vrlik Photography / Shutterstock.com

Nonetheless, because of Rivian’s existing deals and the very strong reviews that its electric vehicles have received, I remain very bullish on the long-term outlook of RIVN stock. Moreover, I believe that the recent downturn of its shares is overdone.

One reason for the poor performance of Rivian’s shares recently was the Fed’s decision, revealed on Jan. 5, to take steps to reduce its balance sheet later this year. The decision caught me, along with many others, by surprise and dragged down the shares of many start-ups, including Rivian.

And secondly, Amazon, which had already agreed to buy 100,000 delivery EVs from Rivian, will, according to Dodge parent Stellantis, purchase a number of the latter company’s “Ram ProMaster battery-electric vehicle.”

So, here we are a week into 2022 and RIVN stock is down 17%. That compares to a 0.23% gain in the iShares Self-Driving EV and Tech ETF (NYSEARCA:IDRV), with Rivian shares at #19 among the exchange-traded fund’s 139 holdings.

Why RIVN Stock Worries Are Way Overdone

I believe, however, that high-quality start-ups which make big deals and show that their products are in high demand will ultimately overcome the macro hurdles and reward their long-term investors. Put another way, investors and the Street in general won’t worry much about interest rates and discount rates if a company is collecting or is clearly about to receive huge amounts of money.

Given the deal that Rivian has already made with Amazon, along with the stellar reviews that its R1T electric pickup truck has received, the automaker is definitely in this “high-quality start-up” category.

As for the Amazon-Stellantis deal, Amazon is obviously a gigantic company that makes literally millions of deliveries per year. Just on the very low chance that something goes wrong with one of Amazon’s EV-maker partners, it makes sense for the e-commerce giant to have a backup in place. For example, what if Rivian is acquired by one of Amazon’s competitors, which then stops selling EVs to the e-commerce giant? Or what if Rivian can’t obtain enough batteries to meet Amazon’s EV demand?

Secondly, by partnering with Stellantis as well as Rivian, Amazon is leaving itself much less susceptible to large price increases by either automaker.

And of course, Amazon will have to buy a tremendous number of delivery EVs over the next several years. As a result, Rivian can still generate many billions of dollars of revenue from Amazon, despite the deal that the e-commerce giant made with Stellantis.

So, given these points, the deal between Amazon and Stellantis is not a major problem for Rivian, and consequently RIVN stock investors. Also worth noting is that Amazon owns 20% of Rivian’s shares, so it will probably try not to shoot itself in the foot by harming Rivian’s business. “Rivian’s partners, which include Amazon and Ford (NYSE:F), check a quality box for institutional investors that most public EV companies can’t check,” disruptive tech investors Loup Funds commented in mid November.

Rivian’s Extremely Strong Reviews

As I pointed out in a previous column on RIVN stock, Rivian’s R1T pickup truck has received extremely strong reviews. For example Motor Trend named the R1T its truck of the year, while Edmunds gave the EV its new Top Rated Editors’ Choice award.

Moreover, Edmunds raved that, “The R1T is the quickest and best-handling truck we’ve ever tested,” while Motor Trend contended that Rivian’s EV is “”The most remarkable truck we’ve ever driven.”

Finally, website Elektrek called the R1T “a game-changer,” and author Seth Weintraub wrote that it is the most impressive EV he’s driven since Tesla’s (NASDAQ:TSLA) Model S in 2012.

Valuation and the Bottom Line on RIVN Stock

Rivian has huge opportunities with Amazon and other companies that own fleets of delivery trucks, along with a large addressable market in the consumer space. Consequently, I believe that the stock’s current $76.2 billion market capitalization far undervalues the company’s longer-term potential, and I recommend that long-term investors buy the shares.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Plug Power, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.