Last week, an indiscriminate short-squeeze lifted Nikola’s (NASDAQ:NKLA) shares, albeit temporarily. But as the anti-bears put pressure on the hedge funds, not all stocks will sustain their lift. NKLA stock topped around $30 last week and is still up 62% over a period of one month. Its short float is 36.42%, which help explains the brief rise.
However, after all of the scandals surrounding the company, why should investors even consider putting money into Nikola at all?
The answer is straightforward: they shouldn’t.
Avoid NKLA Stock
Markets initially followed the Robinhood–Reddit short-squeeze on GameStop (NYSE:GME) last week by buying NKLA stock. But that faded quickly.
There’s good reason to not have confidence in this name. Back in September, short-selling firm Hindenburg Research correctly outlined the intricate fraud around Nikola’s business. Since that publication, founder and former Chairman Trevor Milton has left the company. Milton disappeared from the public eye and also deleted his social media accounts.
Nikola shares have traded as low as $10.34, though, so the recent surge to the $30 range is almost a lucky opportunity. Investors who missed the chance to sell the stock last time got another chance last week. When retail traders squeezed out Gamestop shorts, Nikola shares also rose.
Two weeks before that, Worthington Industries (NYSE:WOR) had sold roughly 7.05 million shares worth about $146.6 million. It barely got out of its position, making only around 1.9% in profits.
Clean Energy and Electric Vehicle Hype
At Nikola’s current market capitalization of $9.5 billion, markets continue to overvalue the company.
This is due partly to hyped interest in names like Plug Power (NASDAQ:PLUG) and FuelCell Energy (NASDAQ:FCEL). Both firms constantly sell shares to raise their cash on hand and market demand for their stock is strong enough to absorb the dilution. So, as long as investors are enamored with clean-energy stocks, NKLA stock will not fall by much.
The 10-fold return in electric vehicle (EV) stocks like Tesla (NASDAQ:TSLA) does support investor speculation in Nikola as well. And to the company’s credit, it is strengthening its clean-energy mission and messaging. On Jan. 7, Global Water Resources (NASDAQ:GWRS) announced a master utility agreement with Nikola. GWRS will supply water and wastewater services to Nikola’s new manufacturing plant in Arizona. CEO Mark Russell noted the following:
“Our goal for this manufacturing site is to design it with the smallest environmental footprint possible, while making the highest quality products for our customers. Our engagement of Global Water reflects a shared commitment to a sustainable future for Arizona and beyond.”
So, NKLA is committed to environmentally friendly manufacturing. The plant is 2,700 acres and GWRS’s servicing on the site will begin this year. However, Nikola is not clear in the press release what the site will produce and at what rate.
With Trucks Non-Existent, Choose GM Instead
And new factory or not, Nikola really hasn’t delivered yet.
That’s part of why General Motors (NYSE:GM) backed out of a truck-development partnership with the company last November. Because the Badger electric pickup wasn’t ready for production, GM scaled back the deal.
Instead, the automotive giant said it would act as a supplier and sell fuel-cell technology to Nikola. So, if that’s the case, it makes more sense for investors to buy GM stock than to speculate on NKLA. After all, GM will also be spending $27 billion on making EVs and autonomous vehicles (AVs) itself. The legacy automaker expects to have 30 new all-electric vehicles on the market by 2025.
GM is also accelerating its EV timeline by releasing 12 models for its Chevrolet and GMC brands. So, value investors may want to wait for GM stock to pull back before betting on the established firm. On the flipside, as time runs out on NKLA stock, shareholders have fewer chances to sell it at higher prices.
Investors may want refer to the provided Stock Rover sentiment score to gauge market interest in the stock. At 63 out of a possible 100, NKLA is barely outperforming the S&P 500. Buying interest in EV and clean energy stocks is weakening by the day. Basically, Nikola is at risk of facing a sharp selloff as investors shun speculations.
So, get out of Nikola before it’s too late. Markets have already lost their patience waiting for the company to prove its viability.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Lau is ac ontributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.