Rivian Automotive was one of the market's biggest losers today, losing 3.1% of its value and underperforming both the S&P500 and Dow Industrial composite indices by 0.0%. The large-cap Consumer Discretionary company ended the day at $17.16, but is still well above its 52 week low of $11.68 and is 39.07% below its average target price of $28.17. Over the last 12 months, Rivian Automotive is down -45.0%, and has underperformed the S&P 500 by 60.0%. The stock has an average analyst rating of buy.
Rivian Automotive does not publish its forward or trailing price to earnings (P/E) ratio because the stock has negative forward and trailing earnings per share (EPS) values at $-3.33 and $-6.46 respectively. Since P/E ratios are share price divided by earnings per share, Rivian Automotive has a negative P/E ratio, which is not meaningful besides the fact that it indicates the company is not currently profitable.
When it comes to new businesses -- especially those operating within the technology sector -- investors are often willing to overlook prolonged periods of negative earnings and inflated valuations. But not so in the Consumer Discretionary sector, which has an average P/E ratio of 22.33. If Rivian Automotive cannot improve its earnings picture soon, it's unlikely that investors will stay onboard -- unless there are other factors in favor of the business's outlook.
Another metric for valuing a stock is its Price to Book (P/B) Ratio, which is its share price divided by its book value per share. The book value refers to the sum of all of the company's tangible assets and liabilities. Rivian Automotive's P/B ratio of 1.39 indicates that the company is fairly valued when compared to the Consumer Discretionary sector's average P/B ratio of 3.12.
To understand Rivian Automotive's business, and therefore its attractiveness as a potential investment, we must analyze its margins in two steps. First, we look at its gross margins, which take into account only the direct cost of providing the product or service to the customer. This enables us to determine whether the company benefits from an advantageous market position:
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 2,981,000 | 5,845,000 | -96 | 48.94 |
| 2022 | 1,658,000 | 4,781,000 | -188 | 97.21 |
| 2021 | 55,000 | 3,755,000 | -6727 |
- Average gross margins: -2337.0 %
- Average gross margins growth rate: 75.7 %
- Coefficient of variability (lower numbers indicate more stability): 1.5 %
Next, we consider the Rivian Automotive's operating margins, which take into account overhead. This tells us whether the company's business model is fundamentally profitable or not:
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 2,981,000 | 3,423,000 | -200 | 50.86 |
| 2022 | 1,658,000 | 3,733,000 | -407 | 94.7 |
| 2021 | 55,000 | 3,755,000 | -7673 |
- Average operating margins: -2760.0 %
- Average operating margins growth rate: 70.3 %
- Coefficient of variability (lower numbers indicate more stability): 1.1 %
From the above, we can see that Rivian Automotive is not a profitable business. While unprofitable businesses may provide shareholders with attractive short term returns, more conservative investors will prefer to wait until the business can reach a profit before committing.
To get a better idea of Rivian Automotive's finances, we will now look at its cash flows. Often touted as a general yardstick for a company's financial health, cash flows represent the sum of inflows and outflows of cash from all sources, including capital expenditures:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | -5,696,000 | 1,130,000 | -6,826,000 | -6.31 |
| 2022 | -5,052,000 | 1,369,000 | -6,421,000 | -45.4 |
| 2021 | -2,622,000 | 1,794,000 | -4,416,000 |
- Average free cash flow: $-6826000000
- Average free cash flow growth rate: -15.6 %
- Coefficient of variability (lower numbers indicating more stability): 160.4%
Free cash flow represents the money that Rivian Automotive can use to either reinvest in the business or to reward its investors in the form of a dividend. Since the company's most recent cash flows are negative, it comes as no surprise that investors do not get a dividend.
In conclusion, Rivian Automotive may be unattractive to investors with a low risk tolerance or a long term investment horizon. Stocks such as these may offer strong returns in the short term, but for now the long term potential of the company is not substantiated -- by the numbers, at least.
