Sign InNikola Corporation Faces Market Pressure with Stock Drop and Negative News
Summary
Nikola Corporation's stock price has dropped significantly due to negative news surrounding the company, including the issuance of convertible notes and a recall of 200 trucks, making it difficult to predict short-term performance, but potential upside exists in the long term if the company resolves its challenges and resolves the ongoing uncertainties. (August 21, 2023)
Fundamental Analysis
The Nikola Corporation (NKLA), a player in the electric vehicle sector, is witnessing significant market pressure. The share price significantly dropped by 22.96% ($0.45) to $1.51 on August 21, 2023. The dramatic drop is largely attributed to a series of negative news surrounding the company.
Recent reports document several events that are driving down the stock's value. For one, Nikola decided to issue $125 million in new convertible notes to a division of the New York-based hedge fund, 3i Management. This situation incentivizes noteholders to short the stock, which is likely adding to the existing downward pressure. Further, the company presented warnings over the risks of delivery disruptions caused by an investigation into their battery pack, leading to a recall of more than 200 trucks.
The company also launched a $325 million offering of convertible notes, which could potentially dilute the equity shareholders hold in the company. Due to these factors, many investors may be skeptical about the short-term performance of the stock, reflected by the sudden drop in market pricing.
The company's 50-day and 200-day moving averages stand at $1.80 and $1.86 respectively, both above the current stock price of $1.51. The current relative strength index (RSI) is at 21, indicating that the stock is in oversold territory, which could suggest a potential bounce back. But given the ongoing corporate issues, this may not happen promptly.
The company's earning per share (EPS) is at a negative $1.4 and the P/E at -1.08, indicating unprofitability. With a discounted cash flow (DCF) value of $2.04, which is above the current market price, the stock could offer potential upside once the company resolves its challenges. A point of note is that the consensus among analysts is to 'Buy' with targets between $8-$12, considerably higher than its current level.
Technical Analysis
Technically, the stock closed below its support level of $1.4, which may add to the selling pressure. However, a reversal to re-establish above this level could provide short-term relief to the falling stock price. For a solid turnaround, the stock needs to break past the resistance level at $1.82.
The MACD (3-month) value is at a small positive 0.05515, but given the prevailing market sentiment, this may not offer significant positive momentum in the short run. The average true range (ATR) stands at a high 23.06, indicating considerable volatility in the stock.
Prediction and Evaluation
In light of the ongoing situation at Nikola Corporation, predicting the exact stock price for the next trading day (August 22, 2023) or the forthcoming week might be challenging due to high market volatility. However, evaluating current technical and negative fundamental news, a further downward adjustment in the share price could be expected in the short term.
However, it is important to monitor the developments around its financial structure and news on the recall and battery pack investigation for signs of potential recovery in the long term. While analysts' consensus is to 'Buy,' given the ongoing uncertainties related to the battery recall and the convertible notes, it may be wise to 'Hold' until concrete positive news emerges. Anyone considering a 'Buy' ought to do so with proper risk management given the volatility and pending corporate issues.
