Shares of Nikola, the electric heavy-duty truck maker, have experienced an impressive surge in just a few days. Let’s explore what is behind this remarkable growth and whether it can be sustained.
Unprecedented Two-Day Rally
Nikola’s stock, with the ticker symbol NKLA, has witnessed a staggering two-day rally. On Thursday, share prices soared by more than 60%. Even with early trading on the following day, the stock rose by an additional 20%. Astonishingly, these increases occurred while the S&P 500 and Dow Jones Industrial Average rose by only approximately 0.2% and 0.5% respectively.
A Striking Upward Trend
The share price of Nikola, which closed at $1.30 on July 6, has impressively gained 105% within a span of merely six trading sessions. The peak was reached on Friday when prices soared to as high as $2.89.
Positive News Fueling the Rally
A notable upturn for the company came when an announcement was made on Thursday regarding a significant sale agreement. Specifically, Nikola secured a 50-truck sale to BayoTech, a reputable hydrogen producer. These trucks will utilize hydrogen fuel cells to transport BayoTech’s esteemed hydrogen gas.
While this news served as a catalyst for the rally, it begs the question: can a two-day surge of 93% be attributed solely to this announcement? It is possible that short covering has contributed to the ongoing rally. In essence, short sellers borrow stock they do not own and sell it, while betting on the stock’s price to decrease. If prices indeed fall, these short sellers can buy back the stock at a lower price, effectively returning it to its original owner.
It remains to be seen whether Nikola’s remarkable growth will continue. For now, investors and market observers are intrigued by this meteoric rise in company value.
Short Interest in Nikola Stock
According to FactSet, the short interest in Nikola stock stands at approximately 25%. This percentage represents the amount of stock that has been borrowed and sold short relative to the total stock available for trading. It is worth noting that this figure is remarkably high compared to the average short interest for an S&P 500 stock, which is less than 2%.
Potential Risks for Short Sellers
When short interest reaches such heights, short sellers expose themselves to potential squeeze situations. In the event of positive news, these sellers often find themselves rushing for the exit simultaneously, leading to a self-perpetuating rally.
The Uncertain Future of Nikola Stock
The trajectory of Nikola stock moving forward is uncertain and remains a matter of speculation. Currently, the shares have experienced a significant decline of 97% from their all-time high in 2020, reaching almost $94 per share. It is highly unlikely that the stock will approach these levels again. At present, its 52-week high stands at around $9 per share, but even this may be considered ambitious. In fact, the average price target provided by analysts is $2.40 per share. However, it is important to note that the Street’s guidance has not proven to be particularly informative, as the average analyst price target was approximately $11.50 a year ago.
Evaluating Nikola’s Value
Valuing Nikola based on earnings is currently impossible due to the absence of any substantial profits. As a startup company, Nikola is still in its early stages and requires additional capital infusion. Predictions estimate that it will utilize over $1.1 billion to develop its business from now until the end of 2025. As of the first quarter, Nikola had approximately $200 million on hand.
A Speculative Stock for Now
Given its current circumstances, Nikola remains a more speculative stock option. Investors may choose to engage in short-term trading strategies, but they should exercise caution and conduct thorough research beforehand.
Introduction
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Maecenas bibendum arcu in feugiat pulvinar. Vestibulum eu metus cursus, tincidunt nunc at, tristique tortor. Curabitur tincidunt sed nunc quis venenatis. Proin aliquam fringilla eros, eget imperdiet nibh viverra ac. Nulla commodo sapien ut turpis malesuada ultricies id ut massa. Nullam tristique massa sed ligula sollicitudin aliquam.
