Nikola's Rollercoaster Ride Continues as Shares Surge 7.6% in Early Trading

Assessing the Good and the Bad News

Monday’s gains lack a specific news catalyst to attribute them to. However, when examining the second-quarter report, analysts discerned a mix of positive and negative elements. On the positive side, the cash required to build Nikola’s business has been decreasing, indicating a healthier financial position. Furthermore, there remains strong demand for Nikola’s hydrogen fuel cell-powered heavy-duty truck, bolstering confidence in the company’s core product.

However, the full-year sales guidance was downgraded, which is viewed as a negative development. Additionally, there was a management change, with former CEO Michael Lohscheller stepping down due to a family health issue. The newly appointed CEO, Steve Girsky, comes with extensive automotive experience and currently serves as the chairman of Nikola’s board.

Shilsky, one of the analysts covering Nikola stock, rates the shares as a Hold with a price target of $2.50 per share. Following the earnings report, he adjusted his price target by reducing it by 50 cents per share. Among the analysts providing coverage, only 13% recommend buying Nikola shares, contrasting with the roughly 55% buy-rating ratio witnessed for stocks in the S&P 500, according to FactSet, which highlights the skepticism surrounding the stock. FactSet also reveals the average target price for Nikola shares to be $2.70 per share.

Shareholder Approval Sets the Stage for Capital Raises

An intriguing twist emerged on Friday when Nikola shares experienced a decline despite positive news. Shareholders finally greenlit a proposal to increase the maximum number of shares authorized by the company, thereby paving the way for potential capital raises. Despite the positive implications for the company’s growth, this development can result in increased stock supply, potentially leading to shareholder selling and increased volatility.

Nikola’s management estimates that an additional $600 million in capital is needed to achieve cash-breakeven, which is not surprising given the capital-intensive nature of the business. With the approval to increase the number of shares, a stock sale is anticipated in the near future. Shareholders who are not willing to endure the accompanying volatility may choose to sell their holdings.

It’s worth noting that stock volatility often takes time to dissipate following significant news events. Market reactions can resemble aftershocks in the wake of an earthquake, with varying levels of impact. An illustrative example is the 61% surge in Nikola shares that followed an order for 50 fuel cell trucks from BayoTech.

Before the aforementioned announcement, Nikola shares were priced at $1.38. As of Thursday’s market close, the shares stood at $3.40, just prior to the earnings report.