The Rivian share price is now below the IPO level! Is this a bargain?

Jon Smith takes a look at the fall in the Rivian share price recently since its blockbuster IPO to see if it’s worth buying some of the shares now.

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3D Word IPO with Target on Chalkboard Background

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Back in the middle of November last year, Rivian Automotive (NASDAQ: RIVN) went public. The IPO price was set at $78, but the Rivian share price jumped 29% on the opening day to hit above $100. In the process it raised over $11bn, and put it firmly on the map as an electric vehicle (EV) challenger to the likes of Tesla and NIO. However, since Christmas, the shares have slumped from $100+ to $68. Is this a bargain buy for me now?

Reasons for the recent fall

Rivian performed well straight off the bat from the IPO as investors were optimistic about the future of EVs. In my opinion, it was also heavily bought as an alternative to the main Nasdaq-listed EV giant – Tesla. Given the share price gains during 2021 of Tesla, Rivian allowed investors to diversify.

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Unfortunately, this spike only lasted a short time. Over the course of late December and January so far, there have been numerous reasons for the Rivian share price falling. 

Firstly, growth stocks in general have underperformed due to nervy investor sentiment. Part of this concern is due to the tightening of monetary policy going on in the US. Some banks are forecasting as many as four interest rate hikes from the US this year. Added into the mix was the soaring number of Omicron cases in the US earlier this month. It posted a record of over one million cases in a single day.

With Rivian specifically, the release of quarterly results in December also didn’t help. The company generated a negative gross profit of $82m, so it had no hope of making a net profit for the three months. Expenses were also high at $694m, up 141% on the same period in 2020. I get that the firm is gearing up for mass production, but some investors don’t have a long-term mindset. I think the people who bought the shares for speculative short-term gains would have likely sold, contributing to the downward pressure on the share price.

Finding value in the share price

There’s definitely something to be said about the share price being below the IPO level only two-and-a-half months after it went public. In theory, the investment bankers should have set the value at a fair price in November. In fact, usually the IPO is priced slightly below par, in order to show positive sentiment for the share price to rally on the first day.

Therefore, I don’t think the fundamental Rivian value has decreased by almost 15% ($78 vs $68) over this period. In January, the company announced that over 1,000 vehicles were produced during 2021. The business is still in the process of scaling up production and marketing. It’s hard to pin an estimate on sales and profitability going forward. Yet I think the company is well placed to capitalise on the growing EV market. 

From a long-term value perspective, I do think it’s a good buy right now and am considering buying some shares myself. In the short term I think things could be volatile, but I can ride this out.

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Jon Smith has no position in any share mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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