Shares in British electric vehicle (EV) manufacturer Arrival (NASDAQ: ARVL) – which hit the public markets in March via a SPAC deal – have taken a beating this week. At the start of the week, Arrival’s share price was hovering around the $17 mark. Today, however, it’s near $14.
So, why have the shares taken such a huge hit this week? And has the share price weakness provided a good buying opportunity for me?
Why Arrival’s share price just tanked
The reason the share price has fallen is that the company’s third-quarter 2021 results, posted on Monday, were not great.
One thing that disappointed investors was the loss for the quarter, which at €26m, was larger than the loss in the third quarter of 2020 (€22m).
What really spooked the market, however, was the fact that the company advised that it has “revised its Microfactory rollout” and now expects “significantly lower” vehicle volumes and revenue in 2022.
The company noted that as a result of the revision to its rollout schedule, previous long-term forecasts (it was previously expecting revenue of around $1bn for 2022) should no longer be relied upon.
Investors hate it when companies fail to deliver on their guidance, so it’s no surprise that Arrival’s share price took a hit on this news.
Should I buy Arrival stock now?
As for whether I should buy the stock for my portfolio, I’m not convinced that buying now is the best move.
Don’t get me wrong, there are certainly things to like about it from an investment point of view. For starters, the group’s ‘Microfactory’ strategy should allow it to keep production costs low. These mini factories cost just $50m to set up. To put that in perspective, Tesla just spent $5bn to build a large-scale production plant in Nevada. This approach to production could help Arrival earn larger profits than its EV peers in the long run.
Secondly, the group already has about 64,000 non-binding orders. One company that has placed an order with Arrival is United Parcel Service (UPS), which is one of the world’s largest couriers. It has placed an order for 10,000 vans, which is very encouraging.
What concerns me, however, is the stock’s valuation. At the current share price, Arrival has a market cap of nearly $9bn. That’s high, to my mind, given that the company is yet to generate any revenue.
It’s worth pointing out that at present, around 17m Arrival shares are on loan (being shorted). That equates to short interest of about 11%. This indicates that I’m not the only one who sees the valuation as high. Clearly, a lot of institutions expect the share price to fall.
Given the high valuation, the lack of revenues, and the interest from short sellers, I’m going to leave Arrival stock on my watchlist for now. All things considered, I think there are better growth stocks I could buy at the moment.
Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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