Once touted as a potential competitor to Tesla, Rivian Automotive (NASDAQ:RIVN) has fallen by more than 60 percent over the last year.
Although the company has seen its production and deliveries rise considerably during that time, increasing competition and a selloff of growth stocks have both contributed to its rapid loss of value.
One of Rivian’s biggest challenges is its deeply negative margin. The company’s net margin is -407 percent, while its return on equity is -37.5 percent.
Over the trailing 12-month period, the company has lost $7.41 per share. In order to justify itself as an investment, Rivian would have to drastically improve these numbers and chart a course toward eventual profitability.
Even after its selloff, Rivian also appears to be priced on the assumptions of massive future growth. The company’s market capitalization is over $11 billion, despite the fact that its annual sales total less than $2 billion and its losses are still enormous.
Bullish investors still believe that the company’s future profits could justify this valuation, but it remains deeply unclear how long such profits could take to materialize.
There are, however, also bright spots for the struggling EV company. In Q1, the company’s production rose by 268 percent over the previous year. Its deliveries, meanwhile, rose 548 percent.
While these numbers are certainly impressive, it’s important to keep in mind that they represent massive growth from very low baselines.
Rivian also has a large cash reserve that has allowed it to largely avoid debt. The company’s debt-to-equity ratio is low at just 0.09. Rivian’s ability to cover its obligations with cash puts it ahead of many growth companies, but it’s still difficult to make a buy case for the stock at the moment.
Analysts do remain broadly bullish on Rivian, with the stock holding a weak consensus buy rating. Given the company’s steep losses, it is long road to profitability and its apparent overvaluation, however, Rivian currently appears to be a stock to stay away from.
ZIM Integrated Shipping Services
As a major international freight shipper, ZIM Integrated Shipping Services (NYSE:ZIM) has suffered from falling demand and lower shipping rates over the past year. This has led the stock to decline by nearly 75 percent, leaving it potentially undervalued.
Much of ZIM’s selloff can be attributed to its slide into negative earnings. Over the coming year, the company is expected to lose $1.40 per share.
ZIM’s fundamental potential for profit, however, seems to remain solid. The company’s net margin is a healthy 36.7 percent, while its return on equity of 87.1 percent is nothing short of outstanding. Based on these metrics, it strongly appears that the market has become too bearish on ZIM.
Another catalyst for the stock’s selloff has likely been a negative perception of its income potential. ZIM distributes much of its earnings as dividends, leading to high but also irregular payouts.
In Q4, for instance, the stock paid $6.40 per share despite trading under $30 throughout the quarter. With earnings almost certain to remain negative in the coming year, investors could see much smaller dividends throughout 2023.
Even though the company could struggle this year, there are still many reasons to like ZIM. To begin with, shipping rates appear to be rising again.
The Baltic Dry Index, a benchmark for shipping rates of raw materials, soared in February. This could be an early indication of a recovery in the shipping market. In the event of such a recovery, ZIM would almost certainly be a prime beneficiary.
The market also seems to have sold ZIM into deeply undervalued territory. At just 0.16 times sales and 0.33 times cash flow, ZIM’s share prices no longer appear to reflect its fundamental value well.
While investors may have to wait a while for a recovery, ZIM appears to be a decent candidate for investors willing to buy the dip and hold until macroeconomic conditions improve.
Buy now, pay later giant Affirm Holdings (NASDAQ:AFRM) is among the companies that were hit hardest when interest rates began to rise, and the stock has struggled consistently ever since.
Over the last year, Affirm has shed over 70 percent of its value, leaving investors to decide whether the company is oversold or likely to suffer further losses.
The largest argument favoring Affirm’s long-term prospects is likely its commercial partnership with Amazon. Through this partnership, shoppers can pay for purchases over $50 using Affirm’s monthly payment plans.
This partnership gives Affirm access to an enormous pool of potential customers. The company has also integrated with Shopify, allowing smaller merchants to take advantage of its buy now, pay later model.
Despite these seeming positives for the business, ignoring Affirm’s fundamental problems is extremely difficult. The most pressing of these is its debt, which currently stands at twice its total equity.
The company’s return on equity is also -31.7 percent, presenting a severe challenge to future profitability. In the coming year, Affirm is expected to lose about $2.80 per share.
Affirm is clearly a mixed bag when it comes to determining its value and prospects. On the positive side, Affirm is a market leader in a rapidly growing part of the financial world.
On the downside, high debt and a struggle to reach profitability could put the company in jeopardy before it has a chance to recover. These factors make Affirm a high-risk, high-reward stock with at least some long-term potential.
Ultimately, Affirm appears to be a company that could be worth watching for signs of improvement. Due to its steep discount to its previous highs and management’s commitment to reaching positive earnings on a non-GAAP basis in 2023, the stock could bounce back sometime later this year.
Risk-tolerant investors may decide to pick up small positions in Affirm now, but others will likely want to hold off for the time being. Given the company’s long-term potential if it can solve its financial problems, it’s likely that Affirm could have room to run after the picture becomes slightly clearer for investors.
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