The argument that the market overhyped Rivian Automotive (NASDAQ:RIVN) stock for the first week after its initial public offering (IPO) is valid. It got too hot too quick. There was little to substantiate it running to $172 within a week of its $100 IPO. That is well above target prices and it seems that Rivian simply received an overly warm reception.
Then some problems began to emerge. Those included production woes and broader market structure issues. In the wake of this, RIVN stock has plummeted. Given that the company is still quite strong, it could be a buy-the-dip opportunity at present.
Production Isn’t Bad
One of the early troubles plaguing Rivian is that the firm’s production expectations have fallen short of targets. Back in mid-December, the company revised its previous guidance downward that it would produce 1,200 vehicles in 2021. The market did not appreciate the mid-December announcement that it would come up a few hundred vehicles short.
Recent news reaffirms that earlier assertion: Rivian produced 1,015 vehicles between mid-September and year-end 2021. That’s a few hundred less than 1,200. But ask yourself this: Do you think that Rivian’s long-term prospects have been substantially diminished due to that small bump in the road? Or, more likely, do you believe that news will become a footnote in the history of the company? I’m going with the latter.
In other words, I think that a common market phenomenon has occurred once again. That is, the pendulum has swung too far in the opposite direction. Rivian was once too hot, and now it’s too cold.
Naysayers Are Actually Promising
Make no mistake about it: Rivian has gone cold. It now trades around $69. Yes, that is drastically less than the $172 it peaked at in the week following its IPO. But it is also easy to make the case that the bad news surrounding Rivian isn’t even that bad.
Take, for example, JPMorgan (NYSE:JPM) analyst Ryan Brinkman’s recent reduction to his target price for RIVN stock from $104 to $84. He has been bearish on Rivian. But even so, his target price leaves plenty of return potential at current prices.
Brinkman cut his Rivian price in light of the recent slide in high growth companies. That is fine given U.S. Federal Reserve rates as they relate to inflation. There is a logical reason for that to have happened to the growth sector rooted in economic theory.
But I have to also imagine that he and other bears are negative due to production woes. That is where I disagree. Rivian came public in what will likely be one of the worst historical periods for supply chains when all is said and done. So, I would give it a lot of leeway.
Production is Paramount
Forget the financial fundamentals behind Rivian. It really doesn’t matter this early in the game. It is really about getting vehicles out there and into the hands of customers and establishing its name.
Demand is strong. There were 71,000 pre-orders for the R1T and the R1S as of Dec. 15. Current news that Rivian paused production earlier this month doesn’t help its stock.
But the company has a second plant scheduled to open in Georgia in 2024. That will help. It has to deliver 10,000 vans to Amazon this year, as well. It isn’t in an easy position. But if you give it the benefit of the doubt and assume it will work out the kinks, it is a buy opportunity.
What to do With RIVN Stock
I think Rivian is still on a path for great success. Its IPO was oversold, we know that much. But I think the market has swung too far in the opposite direction and has over-corrected. Now RIVN stock is cheap. That is your opportunity. It is early in production and Rivian’s success or failure is far from settled this early in the game.
On the date of publication, Alex Sirois 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 InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.