It’s been a bumpy road for Nikola Corporation’s [NKLA] share price, which first soared and then slumped following its IPO on 4 June. As of 5 November’s close, Nikola’s share price was down 40.8% since its market debut at $19.55. The company is expected to release its third-quarter earnings report on Monday 9 November but what should investors expect?
As part of a reverse merger with VectorIQ, Nikola went public on 4 June with an opening price of $37.55. On its market debut, Nikola’s share price reached an intraday high of $38.88, before closing at $33.75. Within the next three days, Nikola’s share price hit an intraday high of $93.99 before closing up 136.2% on its opening value.
Since then, however, Nikola’s share price has lost a lot of energy. Recently, allegations of fraud and misrepresentation have been levelled at the electric vehicle maker. As of 5 November’s close, Nikola’s share price is 78.8% off the 52-week high it reached in June.
Questions over revenue
The negative press has influenced Nikola’s share price performance. News broke on 8 September that the company had struck a $2bn deal with General Motors [GM] that would see the blue-chip company take an 11% stake in the start-up.
Two days later, Hindenburg Research accused Nikola of “intricate fraud”.
Valuation of Nikola's deal with General Motors before being accused of fraud
The allegation pushed founder and then-executive chairman Trevor Milton to resign on 21 September, leaving the GM deal undetermined. Days after his resignation, two women accused Milton of sexual assault. Milton has denied these allegations. On 29 September, Nikola’s share price dropped 7.4% to $17.88.
When Nikola announced its second-quarter results on 4 August, it announced a loss of $0.16 per share, missing the consensus estimate of a $0.14 loss per share, according to MarketBeat.
As for revenue, Nikola reported revenue of $36,000 for the quarter ended 30 June, which just about beat analysts’ expectations of $20,000. While the outperformance was positive, it later became apparent that the entire second-quarter revenue was related to the installation of solar panels for Milton himself, according to an SEC filing seen by the Financial Times.
Nikola's Q2 revenue
Looking ahead to its third-quarter results, Yahoo Finance reports consensus earnings estimates of $0.19 per share alongside revenues of $30,000. For the full year, consensus estimates are calling for a loss of $0.68 per share and revenues of $140,000.
“A lot to prove”
For some, the recent controversy should not be the focus. “What's up ahead is all that matters. Nikola's trucks could still turn into a solid business, and [GM] could still figure out a way to get on board and assist. My bet is GM does finalise a partnership before year's end,” Lou Whiteman wrote in The Motley Fool.
“It now appears the excitement got ahead of reality when it comes to Nikola shares. This company has a lot to prove and will need a lengthy amount of time in which to do it. It's not surprising to see investors walk away,” Whiteman concluded
Whiteman isn’t alone in his cautious optimism surrounding the longer-term prospects for Nikola’s share price, as JPMorgan analyst Paul Coster believes the GM deal makes too much sense to abandon.
“Nikola needs access to GM’s supply-chain, engineering resources — the Ultium battery and Hydrotec fuel cells — to de-risk the Class 8 truck initiative, [while] GM needs to realise a return on billions of dollars of investment in hydrogen fuel cells, and Nikola might be the best available option,” Coster wrote in a note, according to MarketWatch. Coster reiterated an Overweight rating on the stock and a $41 price target.
“Nikola needs access to GM’s supply-chain, engineering resources — the Ultium battery and Hydrotec fuel cells — to de-risk the Class 8 truck initiative, [while] GM needs to realise a return on billions of dollars of investment in hydrogen fuel cells, and Nikola might be the best available option” - JPMorgan analyst Paul Coster
Among five analysts offering 12-month share price forecasts, CNN Money reports a median target of $26, with a high estimate of $79 and a low of $15. The median estimate would represent a 30.3% increase on Nikola’s share price as of close on 5 November.
The consensus rating on the stock given by Zacks Equity Research is a Strong Sell. The consensus among five analysts polled by CNN Money is to Buy the stock, with two analysts giving this rating, two rating it a Hold and one a Sell.