Should I buy Rivian stock now?

Back in early January, I looked at whether electric vehicle (EV) manufacturer Rivian (NASDAQ: RIVN) was a good stock to buy for my portfolio in 2022. At the time I concluded that the risk/reward profile was not attractive, due to the company’s high valuation.

In hindsight, that was a good call. Since then, the stock has fallen from near $100 to around $24, losing roughly 75% of its value. As a result, it’s now about 70% below its 2021 Initial Public Offering (IPO) price of $78.

Has my view on the shock changed after this enormous share price fall? Let’s take a look.

Rivian shares: time to buy?

Looking at Rivian stock today, I still don’t like the risk/reward proposition on offer. The first issue I’m concerned about is supply chain challenges. I believe Rivian (and a lot of other EV makers) are going to struggle to source lithium for their batteries this year. That’s because demand is far greater than supply right now.

“In the next two years, even though there will be significant growth in supply, it will be less than demand, so the gap will just continue to grow,” Joe Lowry, president of Global Lithium, said recently.

They could also struggle to source semiconductors as we’re still in the midst of a global chip shortage. Many analysts expect this to last until well into 2023.

Given these supply chain issues, Rivian may not meet its production targets. It reaffirmed its annual production forecast of 25,000 units (halved from 50k in March) earlier this week. But I’m a little skeptical here. I think the risk is to the downside, given the supply chain environment.

The valuation is still high

A second concern for me is the valuation. Even after the recent share price collapse, Rivian’s market-cap is around $22bn. Given that the group is expected to generate revenue of $1.9bn this year (Q1 revenue was well below estimates, so it may not achieve this), that puts the price-to-sales ratio at over 10. In the current investment environment, that’s quite high.

It’s worth noting that immediately after the IPO lockup period expired a few weeks ago, major investor Ford offloaded 8m shares. This suggests it was worried about the high valuation.

Short sellers expect the share price to fall

A third issue is the stock’s short interest. According to my data provider, 91m Rivian shares are on loan at present. That means short interest is an eye-watering 57%.

This indicates that the short sellers expect the share price to continue falling. I’ll point out that, so far, the shorters, who were making big bets against the EV stock earlier in the year, have been so right on RIVN.

Better growth stocks to buy

Now, as I’ve said before, there are things to like about Rivian as a company. Not only does it have an excellent product in the R1T truck but it also has about 90,000 pre-orders for its EVs. Additionally, it has the backing of Amazon.

However, from an investment perspective, I continue to see a lot of risk. So I won’t be buying Rivian stock for my portfolio any time soon. I continue to believe that there are better growth stocks to buy.