When Rivian first started making headlines, it was dubbed the "Tesla Killer." Now, we get to put Rivian stock to the test.
The electric vehicle (EV) company backed by Amazon.com Inc. (NASDAQ: AMZN) filed to go public on Aug. 27 (Friday). It might seek a $70 billion valuation at its IPO.
We still have much to learn about this company, its product, and its financial picture to make a Rivian stock price prediction. But we know one thing...
The EV industry could be worth $802 billion by 2027, a 395% jump from $162 billion in 2019. And thanks to the attention Rivian seems to be getting, it’s a candidate to dominate that industry.
Along with Amazon, Rivian’s latest $2.5 billion funding round included Ford Motor Co. (NYSE: F) and T Rowe Price Group Inc. (NASDAQ: TROW).
These companies want to invest in Rivian for a reason. And now investors are faced with the question of whether they should, too.
Let’s see what’s in store for Rivian stock…
Rivian is an electric vehicle manufacturer, best known for its SUVs and pickup trucks.
The company was founded by Robert Scaringe in 2009, after he graduated from MIT. Just 11 years later, the company already has more than 1,000 employees.
So far, we know the company has massive potential.
Rivian's most notable vehicle is the R1S. It's an SUV meant to rival Tesla Inc.'s (NASDAQ: TSLA) Model X. The company claims the R1S can drive between 240 and 410 miles on a single charge. If true, that would significantly outpace the Model X's range of 237 to 295 miles. Rivian's version is expected to retail between $70,000 and $90,000.
In late 2020, Rivian sold out its first electric pickup truck, the R1T.
Next, the company looks forward to further cashing in on the relationship with Amazon.
Amazon agreed to purchase 100,000 Rivian EVs back in 2019. Later, Amazon started to test EV delivery vans in Los Angeles and San Francisco in early 2021.
Amazon hopes to have 10,000 of the vehicles in operation by 2022. The full delivery of 100,000 electric vans isn't expected until 2030.
Speculation has run rampant for years about a potential IPO for Rivian stock. Now, it’s finally here.
But does all that hype mean that Rivian stock is a "Buy" after the IPO? Here's the full answer...
Again, since the company filed confidentially, information is scarce. But we can still hypothesize a Rivian stock price prediction based on similar IPOs in the past.
For advice on how to handle the Rivian IPO, I turned to Money Morning Defense and Tech Specialist Michael A. Robinson.
In his 35 years as a Silicon Valley insider, Michael has seen hundreds (and maybe even thousands) of these "hot" new tech IPOs. There might not be anyone more qualified on the topic.
"For years now, I've advised my readers about how the average retail investor should avoid buying high-tech IPOs when they first start trading," Michael said. "When you buy at the open, you really risk losing your hard-earned money. Problem is, people just can't wait. They want in - and they want in fast."
It's that temptation to buy right at the open that ends up crushing retail investors like us.
You see, the large institutional investors (think big banks and billionaire hedge fund owners) get to buy in at the "IPO price."
So on the day of an IPO, you'll often hear about the stock's IPO price. But that is very different from the "opening price" that you and I can buy in at.
Let's look at the infamous GoPro Inc. (NASDAQ: GPRO) IPO from 2014.
Before shares went public, GPRO set an IPO price of $24 for shares. That's where the big institutions got in. But when the stock opened on the market, demand was so high that shares immediately started trading at $35.76. That's where you and I could have bought in.
Think of that. We would have immediately paid 49% more per share than the Wall Street insiders did.
But that's not where the fleecing ends.
Those institutional investors typically need to hold shares for 90 to 180 days before they can sell. This is called a "lockup period." In the case of GoPro, the lockup period was 180 days.
After 180 days, GoPro stock was priced near $69 per share. Institutional investors who sold then made a 188% gain.
But in the year following GPRO's lockup period, shares tanked an incredible 75%. So if you had bought in at $35.76, you'd have lost 50% of your investment in just 18 months. Today, shares trade for just over $4. That's a loss of almost 89% from that opening price.
No wonder Michael calls IPOs a "rigged game."
Instead, Michael recommends waiting until after the lockup period ends before even thinking about buying into one of these hot tech stocks.
"It's much better to hold off for a little more than six months from when the stock hits the market," Michael said. "That's when insiders can sell, an event that usually means a big drop in price. Then, healthy companies start to see their shares push higher..."
After those six months pass, you'll have two earnings reports that you can review. With those, you'll have a much clearer picture of where the company has been and where it's headed. Plus, shares are typically trading cheaper than they were during the hysteria of the opening.
We recommend this same strategy when it comes to Rivian stock. Leading up to the IPO, very little financial information about the company will be available to you. It's better to wait the six months for the hype to die down and see what you're really getting with the stock.
Action to Take: We're still waiting to find out the Rivian IPO date, but our advice will be the same whenever the company goes public. Wait at least six months after the stock has begun trading before you think about buying in. Continue following along at Money Morning in the lead-up to the IPO. We'll keep you up to date as more details emerge.
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