What's the best-selling electric vehicle (EV) in the U.S. that's priced over $70,000? It's not Tesla's Model S, Model X, or Cybertruck. It's the R1S pickup by Rivian (RIVN -4.95%), with a price starting at $74,900. Building off this success, Rivian is developing several cheaper options that it expects will hit the market in 2026, including the R2 and R3.
None of this success has been reflected in Rivian's stock price. Over the past three years, shares have lost nearly 90% of their value, and now trade at less than $15. Does that make this a good time to buy this bargain growth stock?
Rivian has a problem, but it isn't this
Rivian clearly has a problem -- but whatever that problem is, it certainly isn't growth. In the closing months of 2021, when Rivian's share price hovered around $100, its annual sales were below $500 million. Today, annual sales are set to surpass $5 billion. That's a 1,000% increase in less than three years.
Rivian's problem also isn't quality. Its R1T model was ranked one of the best EVs by J.D. Power in a survey that gauged customer satisfaction. Consumer Reports also listed Rivian as one of its most beloved car manufacturers. A whopping 86% of Rivian owners surveyed said that they would "definitely" buy another one. Tesla's rating in that survey also came in high at 74%, but that was only fifth among the brands whose owners were surveyed.
"This year," Consumer Reports wrote, "the EV automaker Rivian, with its R1S and R1T, takes Tesla's former perch at the top of our brand satisfaction list."
Even growth potential isn't a problem for Rivian. At a live reveal event in March, the company announced plans to produce a more budget-friendly R2 model. And in a surprise that would have made Steve Jobs proud, CEO RJ Scaringe also shocked those in attendance by announcing plans for its upcoming R3 and R3X models, which Rivian expects will debut around $35,000.
RIVN Total Return Level data by YCharts.
3 real problems, 1 potential buying opportunity
Rivian's main problem, at least when it comes to its struggling share price, is that the stock was simply overpriced following its hyped-up initial public offering. At the time, shares were priced at 150 times sales. So while its sales have exploded higher, the market had been pricing in even more growth. The net result was a drop in share price as the market rushed to reprice shares to levels more in line with reality. Let this be a warning to any growth investor: Even the fastest-growing company can be a bad investment if you purchase its stock at an overinflated valuation.
Rivian's next opportunity to significantly accelerate its growth, meanwhile, is still at least two years away. The R2 and R3 models should add significantly to its sales, just like Tesla's more affordable models did for its revenue base. But all of that is theoretical for now. Rivian still needs to finish designing them, establish its manufacturing infrastructure, and scale production up to meet a theoretically large demand.
Finally, as with most rapid-growth companies, Rivian will require huge sums of funding to achieve its vision. Its still-struggling share price will make it more difficult to self-fund its expansion. An $827 million incentive package given to it by the state of Illinois to build out its manufacturing operations there should help, as will its tightened capital expenditure plan for 2024. But Rivian's future won't be realized without billions in new funding. The market appears to be bracing for either shareholder dilution at a depressed share price, or new debt issued at decade-high interest rates.
If you're willing to remain patient, however, all of these troubles may have created a buying opportunity. EV sales growth has slowed across the industry, but massive growth is still expected in the years to come. According to a forecast by Statista, EV sales will grow by more than 18% annually over the next several years.
With Rivian now trading at just 2.3 times sales and a market cap of only $12 billion, the stock looks like a buy for aggressive growth investors who are willing to bet on the success of the R2 and R3 a few years down the road.
