Trusting NKLA Stock Means Verifying That Orders Turn to Sales

Nikola (NASDAQ:NKLA) stock has been on a rollercoaster ride since its direct listing in June 2020. I don’t know if you can say stocks age in dog years, but investing in NKLA stock right now is a lot like having a teenager. By this I mean — no disrespect to my teenage readers — investors need to trust but verify.

Nikola stock was punished over fraud allegations stemming from a Hindenburg Research report that ultimately resulted in the arrest of founder and ex-CEO Trevor Milton. However, Nikola stock was also moving lower due to air coming out of the electric vehicle (EV) bubble.

Investors can be forgiven for looking at Nikola as a case of “fool me once shame on you, fool me twice shame on me.” But if you’re willing to look beyond the company’s past troubles, this may be a time to take a position on NKLA stock.

The End of Legal Troubles Could Be In Sight

Milton continues to refute multiple allegations including lying about the success of the company’s Nikola One, its debut truck.

The company made claims that Nikola had engineered and built an electric-and-hydrogen powered truck, that the company was producing hydrogen at reduced cost and that the company had in-house capabilities to develop batteries and other components.

Even though Milton is no longer with the company, the legal troubles for the company have lingered. However, that looks to be coming to an end. The company announced it’s in the process of settling civil fraud charges with the Securities and Exchange Commission (SEC). The $125 million settlement would be equivalent to 20% of the company’s cash on hand.

That news falls in the category of “knowing is better than not knowing.” Investors sent NKLA stock soaring upon the realization that the company may be putting this sordid chapter in the rearview.

However, the stock is failing to hold those gains as investors flee to risk-off assets. And while there’s no telling how long this sell-off will last, opportunistic investors have reason to give NKLA stock a closer look.

A Growing Order Book

Nikola continues to grow its order book. In mid-January, the company announced its latest letter of intent from Covenant Logistics Group. The company is the third large for-hire trucking company to go on-record as potential customers.

However, as investors in the EV field are aware, letters of intention and purchase orders are two different things. And the company will have to prove that its trucks will perform well in demonstrations.

Still, investors have to be impressed that Nikola has delivered more electric trucks than Tesla (NASDAQ:TSLA). And the company has plans to deliver 25 electric vehicles this year (2022) and up to 100 production vehicles by 2024.

If Nikola hits those targets, it would be well on the way to becoming profitable by 2025.

An Idea That is Coming to Fruition 

Another long-term catalyst for Nikola is hydrogen subsidies, which may become part of clean energy initiatives proposed by the U.S. Congress. That dovetails nicely with the European Commission proposing the “world’s first market framework for hydrogen.”

If that came to pass, Nikola would have a market for its fuel-cell electric vehicle (FCEV) truck. And since the company has plans to build its own hydrogen fuel network. Plus, Forbes reports that the company has two partnerships to make building out this network a reality.

NKLA Stock is a Cautious Buy

According to MarketBeat, the consensus of seven analysts is that NKLA stock is a hold. However, the consensus price target is $14.71, a 45% gain from the stock’s current price. And three out of four ratings since the company’s last earnings report are bullish.

But I can understand why investors remain cautious. The electric vehicle market, even in the commercial truck segment, has become crowded. And the company has plenty of work to do in regaining investor trust. However, if you’re still among the cynics, it may be time to take a closer look. When the market begins to look for bargain-priced EV and/or clean energy stocks, Nikola may look very attractive.

On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Chris Markoch is a freelance financial copywriter who has been covering the market for eight years. He has been writing for InvestorPlace since 2019.

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