Nikola Corporation Stock: Supercharged or Pure Speculation?

Whenever a stock doubles in price in less than a month, investors need to understand that it attracts a lot of speculative attention. This is precisely what is occurring with Nikola Corporation stock (NASDAQ:NKLA), which has had an eye-popping June so far. The electric–hybrid truck manufacturer has rallied substantially to reach a sizable market capitalization of $23 billion even though it has yet to sell a single truck.

This is one of the most hyped stocks in the market right now and has investors hoping that it can offer a massive run upwards as we have seen with fellow electronic car manufacturer Tesla (NASDAQ:TSLA). With that said, it might be a good idea to pump the brakes on adding new shares of Nikola Corporation until they are able to actually start selling their products and bringing in revenue. Let’s take a deeper look at Nikola Corporation stock below and decide whether or not you should be adding shares after the massive run it’s had in June.

Intriguing Technology with Possible Roadblocks

This is a company that has the chance to change the transportation industry with its intriguing technology, which is one of the big reasons why it has risen to prominence so quickly. Nikola Corporation produces battery-electric and hydrogen-powered trucks that have the potential to reduce carbon emissions worldwide. As the world looks towards sustainable energy sources to help with environmental conservation efforts, there’s no denying that the demand and potential for these types of passenger and commercial vehicles is there.

The issue here is that the company has yet to deliver a single one of their products to the public. A brief look at Nikola’s latest prospectus reveals a key statement that new investors should not ignore: “We are an early-stage company with a history of losses, and expect to incur significant expenses and continuing losses for the foreseeable future”. Although preorders for Nikola Corporation’s vehicles have reached 14,000, those preorders don’t require any deposit or monetary commitment from customers. The company plans to sell its first truck in 2021, although it remains to be seen if that will actually occur. The technology that Nikola is working on is definitely interesting, but it still has a long way to go to scale up its business.

Red Flags

There are quite a few red flags that investors simply cannot ignore about Nikola Corporation. As a reminder, this is a company that has yet to generate any actual revenue from its products, which means it is extremely difficult to value. The company reported massive insider selling of 53.4 million shares after filing its latest S-1 form with the SEC. Typically, you want to see insiders buying more shares or at least holding onto their shares instead of cashing out after a major run-up. It appears that many of the major Nikola Corporation investors are heading for the exit and liquidating their entire positions in Nikola including Blackrock and certain funds related to Fidelity Investments.

Another red flag to consider is the fact that we are seeing a lot of speculative activity in the market right now. Even bankrupt companies are catching a bid, which suggests that retail investors are the main reason behind rapid rises in price like we’ve seen with Nikola. This type of price action usually doesn’t end well for retail investors, and there’s a good chance that investors who are chasing Nikola Corporation for more short-term upside end up holding empty bags.

We also have to mention the reverse merger of privately held Nikola Corporation with a special-purpose acquisition company called VectoIQ Acquisition Corp., which has enabled Nikola to trade on the NASDAQ. There are quite a few warrants that were issued to investors and insiders when VectoIQ went public initially, which will potentially be exercised soon and ultimately result in more share dilution. As a retail investor, be extremely careful about chasing this parabolic move for more upside.

Cautious Optimism

There’s no denying that Nikola Corporation has a strong marketing team and a compelling vision for producing new and innovative vehicles. However, adding shares at this time after a massive speculative run-up and several red flags will likely end badly for hopeful Nikola investors. If you are a believer in the company’s potential and want to own shares for the long-term, it’s best to wait until we have more information about actual sales and revenue figures for the business before pulling the trigger. Even if the stock runs up higher in the short-term, the risk simply does not outweigh the reward for investors at this time given the fact that this company still has so much to prove.