This year, the valuations of many electric car stocks slumped. One that struggled mightily at times was Rivian (RIVN 1.20%). At the start of 2024, shares were priced above $20. Last month, they fell below the $10 mark.
Then something extraordinary happened. In recent weeks, Rivian shares have surged by more than 40%. It seems as if market sentiment for this struggling EV stock has finally turned around. But if you think the upside potential has already been realized, think again. This is a business that could grow significantly in the years to come, and there’s one event in particular that should have growth investors excited.
Pay attention to this major upcoming milestone
Even after the recent run-up, Rivian’s share price is still more than 40% below where it began this year. The downtrend is nothing new for the EV maker. Since its IPO in 2021, its shares have lost more than 80% of their value. When it first went public, the company had a market cap of roughly $100 billion. Today, its market cap has shrunk to just $14 billion. For comparison, leading EV maker Tesla is valued at nearly $1.3 trillion.
What’s strange is that Rivian’s sales base was actually exploding over those years, growing from nearly nothing to more than $4 billion annually. At its height, the company was bringing in more than $5 billion in sales every year, yet its share price remained in the dumps. There are several reasons for this, but the biggest is quite simple: The market steeply overvalued Rivian when it went public. In 2021, it was one of several EV companies to do so, and it was a time when the valuations of many cleaner-energy-related businesses were shooting through the roof. Rivian has done a terrific job creating quality vehicles that consumers love, which has driven its sales higher and higher (at least, until their recent slump). Yet the company’s business results still weren’t outstanding enough to justify its extreme valuation. The result was perhaps inevitable — a drastic reduction in Rivian’s valuation.
But just as markets can overvalue a stock significantly, so too can they undervalue a stock. That’s seemingly the case for Rivian today, as shares trade at just 3.1 times sales. Tesla, a more mature competitor with a more diversified business model, trades at nearly 14 times sales. Lucid Group, another EV upstart in a similar position to Rivian, trades at nearly 10 times sales.
Of course, a cheap valuation isn’t any good for would-be investors unless the company can outpace the market’s low expectations for it. You may look at Rivian’s recent revenue decline and think its best days are behind it — but think again. In 2026, the company expects to launch three new mass-market models, all with starting prices below $50,000. The two models it currently has in production have base prices of about $70,000 and $76,000, with high-end versions priced at $100,000 or more. Getting its new models to market should allow it to compete for tens of millions of additional customers whose budgets for a new vehicle are tighter. When Tesla released its mass-market vehicles — the Model 3 and Model Y — its revenue base multiplied by several times in value in the years that followed. The same could be true for Rivian if it can survive until then.
But if you’re still hesitant about buying the stock after its recent run-up, you should know that there’s an event coming in the near term that could provide you with another buying opportunity.
RIVN data by YCharts.
This could be your next big buying opportunity
Rivian will deliver its next quarterly report on Feb. 18. If you believe the predictions of the company’s management team, it should shift to producing positive gross margins — a huge potential win for a company that thus far has been losing tens of thousands of dollars on every vehicle it sells.
In short, every time Rivian made a sale, its net loss widened. In the fourth quarter, all of that could change.
If Rivian achieves positive gross margins, expect the market to react favorably. It would represent a huge achievement for a company operating in an industry that has had plenty of financial failures. But if Rivian fails to meet that target, the stock could pull back again, creating an opportunity for investors to buy shares at a discount.
Still, betting on quarterly results is an inferior strategy compared to taking a long-term approach. If you like Rivian as a business — particularly while it’s still trading at a historically cheap valuation — don’t be afraid to jump in at today’s prices. You could still add more to your position in a couple of months if the company fails to achieve gross profitability this quarter.
Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
