As Nikola (NASDAQ:NKLA) stock pushes higher on no company-specific news, I’m warning serious investors that a short squeeze isn’t the same thing as a Buy signal. I am bearish on NKLA stock because Nikola’s financials are in bad shape, and the stock could end up being delisted from the Nasdaq exchange sooner or later.
Nikola is an electric truck manufacturer that was part of the electric vehicle (EV) boom and the SPAC boom of 2020 to 2021. Today, the SPAC boom is mostly a SPAC bust, and the EV winners are being separated from the EV sinners. So, don’t pin your hopes on Nikola now, even if the share price might pop, as this is probably just a head-fake within a long-term decline.
Nikola: The Good and Bad News About Its Earnings and Capital Position
To be fair and balanced, I’ll acknowledge that Nikola has consistently met or exceeded analysts’ quarterly EPS forecasts. The rest of the story, however, is that Nikola has never been profitable. Furthermore, analysts don’t expect Nikola to post a profit for the current quarter.
It gets even worse when we drill down to the dirty details. In 2023’s first quarter, Nikola generated $11.1 million in revenue, thereby falling short of the analyst community’s prediction of $12.9 million. Making matters worse, Nikola’s net loss widened from an already alarming $152.9 million in the year-earlier quarter to $169.1 million in Q1 2023.
Additionally, if you read between the lines in Nikola’s first-quarter press release, you’ll probably discern that the company basically gave up on trying to sell electric trucks in Europe. Now, Nikola will focus on the U.S. EV market, but that’s easier said than done when the company’s balance of cash and cash equivalents has dwindled from $233.4 million at the end of 2022 to just $121.1 million as of March 31, 2023.
Of course, Nikola could try to raise cash by selling shares, and that’s exactly what the company tried to do. However, reportedly, Nikola’s proposal (and/or the meeting for this proposal) to issue and sell more shares has been adjourned to a later date. If Nikola’s voting shareholders do end up rejecting the proposal, that would be perfectly understandable, in my opinion, as a bigger pool of shares could dilute the value of the current investors’ shares.
CEO Michael Lohscheller is practically begging Nikola’s shareholders to allow the company to issue and sell more stock shares. “Without additional shares, our ability to raise the capital we need to further our mission will be out of reach,” Lohscheller urged. Apparently, experts on Wall Street expect Nikola to burn around $150 million per quarter.
Nikola Stock Gets Above $1, for Now
Without a doubt, the $1/share level has psychological significance. Below that level, you start getting into pennies instead of dollars. Yet, there’s more than just emotional attachments to the $1 level, as Nikola stock needs to stay above that price point for a very specific and urgent reason.
The Nasdaq exchange has been known to sometimes delist stocks if they stay under $1 for too long (such as 30 trading days in a row). Last month, the Nasdaq exchange reportedly issued a noncompliance warning to Nikola because the company’s stock shares remained below the $1 minimum bid price for 30 consecutive trading days. Bloomberg reported that Nikola has until November 20 to address this issue, meaning that by that date, NKLA stock “must close at $1 minimum for at least 10 consecutive business days.”
After what looks like a two-day short-squeeze based on no company-specific news whatsoever, Nikola stock did manage to get above $1 today. However, whether NKLA stock closes above that price today, not to mention 10 consecutive business days, remains to be seen.
Lohscheller has raised the possibility of a reverse split for Nikola stock, and that would certainly solve the stock price problem. It would be an act of desperation, though — a typical tactic in the playbook of distressed businesses facing delisting threats. A reverse stock split wouldn’t solve Nikola’s aforementioned financial shortcomings and wouldn’t necessarily prevent NKLA stock from falling back below $1 in the future.
Is NKLA Stock a Buy, According to Analysts?
Turning to Wall Street, NKLA stock is a Hold based on one Buy and four Hold ratings. The average Nikola stock price target is $3.25, implying 199.5% upside potential.
Conclusion: Should You Consider Nikola Stock?
If you’re just trying to book a quick profit from a possible short-squeeze in Nikola stock, that’s one thing (though it is a risky way to try to make money). It’s a different matter entirely if you’re a serious investor with a long-term strategy for Nikola.
Investors shouldn’t get too excited about the apparent short-squeeze in NKLA stock. It’s not indicative of Nikola’s financial standing, which is shaky. Therefore, when all is said and done, I am not considering an investment in Nikola in 2023.
