Contemplating Purchasing Rivian Stocks if They Dip Below $10?

Contemplating Purchasing Rivian Stocks if They Dip Below $10?

Rivian (RIVN losing 2.78%) stock holds substantial growth potential, despite its recent downward trend. In 2024 alone, Rivian shares have lost around half their value and are teetering on the edge of slipping below $10 per share. If you're prepared to handle extra risk for the prospect of earning 1,000% or more profits, this might be your opportunity. But keep in mind some vital factors before jumping in.

2 reasons justifying your bet on Rivian stock

Rivian's stock price has taken a tumble this year, and its revenue growth narrative suggests why. Despite revenues stagnating in the electric vehicle (EV) market this year, almost everyone's been on the same wavelength, including Tesla (NASDAQ: TSLA).

Actually, Tesla saw revenues decline earlier this year, while Rivian was still recording double-digit growth in sales. Tesla managed a recovery, and in its last quarter, it even outpaced Rivian's growth rate. Both companies are currently grappling with challenges – a period when EV demand growth has consistently fallen short of expectations.

However, there's reason to be optimistic that Rivian's situation will soon turn around.

Initially, the company hopes to record positive gross margins by the year's end. Right now, Rivian is hemorrhaging $32,000 for every car it sells. It's a vast improvement in comparison to earlier quarters yet still a considerable distance away from netting a profit. Tesla achieved positive gross margins quite early in its existence. If Rivian succeeds where it promises, the market reaction will likely be highly favorable, as positive gross margins extend the company's financial runway and demonstrate that its vehicles can be sold at an affordable price point for consumers.

Secondly, the launch of Rivian's mass-market vehicles – the R2, R3, and R3X – will significantly influence its fortunes positively. All three vehicles, due to debut under $50,000, have the potential to emulate Tesla's achievement with the Model Y and Model 3. The Model Y and Model 3 were the drivers of Tesla's second and third growth spurts. Rivian's revenue has skyrocketed by over 1,000% since its 2021 IPO, reaching $5 billion earlier this year. However, recent growth in sales has levelled off. These upcoming models could double or triple its revenue base by the end of the decade.

If Rivian manages to attain positive gross margins and successfully introduces its new models, expect its substantial gap in valuation with Tesla to close rapidly.

Bear in mind these risks prior to investing

In my opinion, only investors with "diamond hands" should plunge into Rivian stock right now – those who can endure significant volatility over the next few years. There are several reasons for this.

Firstly, it's still uncertain whether Rivian will achieve positive gross margins this year, despite management's assertions. In the past, the company managed to improve gross margins by a few thousand dollars at a time. I expect Rivian to reach this objective within a year or so, but there's a chance it may fail to meet its promises this year, casting doubt on its financial runway and potential to become profitable in an increasingly competitive market.

Secondly, Rivian's new models – the R2, R3, and R3X – are not anticipated until 2026, with some variants likely not hitting the road until 2027. By default, this makes Rivian a long-term investment with minimal hard catalysts over the next few years.

Despite these challenges, Rivian's valuation seems too cheap to overlook. Shares, for instance, trade at an 80% discount to Tesla based on a price-to-sales ratio. Even before slipping below the $10 mark, aggressive growth investors searching for substantial upside potential should consider diving in. Just ensure you gradually invest in what dwindles in value, as the stock has fallen consistently throughout 2024.

Investing in Rivian's stock requires a long-term perspective, given that the company's anticipated mass-market vehicles, the R2, R3, and R3X, are not expected until 2026. This prolonged waiting period might make Rivian an attractive option for bold investors seeking significant upside potential, despite the ongoing volatility.

Moreover, Rivian's current valuation appears undervalued compared to industry peers like Tesla, as its shares are trading at an 80% discount based on a price-to-sales ratio, highlighting the potential for substantial growth. However, it is essential to keep in mind the uncertainty surrounding Rivian's ability to achieve positive gross margins this year and the potential impact of delayed model launches on its financial performance.

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