Is the Market Giving Up on NKLA?

One of the standouts of today's afternoon trading session was truck maker Nikola, which logged a -7.7% drop and underperformed the S&P 500 by -5.6%. The Farm & Heavy Construction Machinery stock is now trading at $5.54 per share and is -46.93% below its average target price of $10.44. Analysts have set target prices ranging from $6 to $20 dollars per share, and have given the stock an average rating of hold.

With a short interest of 24.8%, we can infer that the market sentiment on Nikola is negative. Each short position represents an investor's expectation and hope that the stock's price will reverse its present course and start falling.

When a stock is sold short, it means an investor has borrowed shares of the stock from their broker, and then sold them at the going market price. The investor hopes for the price to decline, so that they might buy those shares back at a lower price in the future. Once they do, they can return the borrowed shares to their broker, and keep the profit they made on the transaction.

A possible indicator of market sentiment on a stock (besides its share price, of course) is the portion of institutional investors that make up its shareholders. Institutions such as banks, hedge funds, and wealth managers deploy significant resources towards identifying good investments. If they are invested heavily in a given company's stock, it could mean it's a good investment. Or it could mean the company is being targeted by a takeover attempt.

For what it's worth, institutions own 28.4% of Nikola 's shares, which is an average amount. It means that many institutions are invested, but not to the extent that they would be in a stock such as Apple or Amazon, whose institutional ownership rates hover around 60%. Bear in mind that institutional ownership is just one piece of the puzzle in determining market sentiment, and you should not consider this factor alone in making an investment decision.

Reviewing the analyst coverage of a stock as well its short and institutional ownership percentages gives a glimpse of what the current market sentiment is on Nikola. Warren Buffett famously said that in the short term, markets are voting mechanisms, but in the long term, they are weighing mechanisms. This means that long term investors should be aware of a stock's fundamentals before committing.

At a glance, here are some essential statistics you may want to know about NKLA:

  • It has a trailing 12 month price to earnings (Eps) of $-1.79 per share

  • Nikola has a trailing 12 month Price to Earnings (P/E) ratio of -3.1 while the S&P 500 average is 15.97

  • The company has a Price to Book (P/B) ratio of 4.0 in contrast to the S&P 500's average ratio of 2.95

  • Nikola is a Industrials company, and the sector average P/E and P/B ratios are 21.9 and 3.75 respectively

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The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.