Is RIVN Stock a Falling Knife or a Buy Opportunity?

Last month, it looked like the market was heating up for Rivian Automotive (NASDAQ:SHORE) stock since it tended to increase.

Largely due to growing speculation that the electric vehicle maker will report strong production guidance in its upcoming quarterly earnings release on Feb. 28.

But just ahead of earnings, stocks fell. After publication, the decline accelerated. For what? While Rivian’s 2023 production outlook (50,000 vehicles) represented a sharp increase over its 2022 vehicle production numbers (24,337), that number was still below Wall Street expectations (60,000 to 65,000 vehicles).

RIVN has since continued to slide, due to additional negative developments. As a result, the stock has fallen nearly a third over the past month, hitting a new all-time low. So, after this free fall, what is the best move? Let’s dive in and find out.

RIVN Stock: A Reason to “Buy the Dip”

Rivian is trading at around $13 per share, which means it’s considerably cheaper now than the triple-digit price levels it traded for right after the company’s November 2021 IPO.

Based on current operating results, RIVN is still not a good deal. However, as barrons commentator pointed out March 15, at current prices, Rivian is essentially trading for the silver on its balance sheet.

In short, the market has currently placed no value on the electric truck company’s brand, production, and technology assets.

There is a caveat to this. Rivian will likely burn billions from this cash position this year and in years to come. It is logical that this type of discount is currently applied. Other types of start-ups, such as biotech companies, often trade at a fraction of their cash position for this reason.

Yet if the company could fund its path to profitability with just its current cash position, the bottom line would likely be worth well over $13 per share. This would in theory make a good time to “buy the dip”.

Two reasons why it is better to stay away

Although I’ve laid out a plausible reason to “buy the dip” with RIVN stock, before you burn out and do it, keep one thing in mind. This bullish scenario may be possible, but chances are it is not likely. At least that’s the takeaway, considering other recent company news.

Above, I only touched on the additional negative developments that kept Rivian shares on a downward trajectory. Upon closer examination, staying away from RIVN after the sale seems like the best bet.

First, the company’s plans to raise an additional $1.3 billion, through the sale of convertible notes. The fact that Rivian is raising more money now may indicate that it needs to raise billions more down the road.

The dilution resulting from this capital increase and future capital increases could significantly limit the upside potential of RIVN. Even if the company finally meets expectations and becomes profitable.

Second, news from Rivian and Amazon (NASDAQ:AMZN) possibly ending their exclusivity pact for electric vans is also a bearish sign. The end of being Amazon’s sole electric van supplier may mean greater uncertainty about Rivian’s future growth and timeline for profitability.

my verdict

Besides the two aforementioned negative developments, there are other good reasons why you don’t want to go against the grain on Rivian.

For example, as Morgan Stanley’s Adam Jonas argued in a research note earlier this week, this electric vehicle maker has serious production inefficiencies. Although Jonas remains bullish on RIVN, it suggests that getting the company profitable may be easier said than done.

Not only that, as I have argued in previous reports, growing competition from Ford (NYSE:F), ironically enough, one of Rivian’s former backers is another big negative. While Ford isn’t leaving Rivian in the dust, it may limit the chances of a comeback for this company and for the stock.

With all of this in mind, it’s best to err on the side of caution. Let’s assume this is a “dropping knife” scenario, rather than a “generational buying opportunity”. Follow the lead of the crowd and avoid RIVN actions.

At the date of publication, Thomas Niel has not held (directly or indirectly) any position in the securities mentioned in this article. Opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.