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Why Nikola Stock Is Slumping Today

By John Rosevear - Jun 24, 2020 at 2:14PM

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It was time for a reality check.

What happened

Shares of electric big-rig start-up Nikola (NKLA -1.61%) were down on Wednesday, as investors continued to digest a reality-check note from a Wall Street analyst earlier in the week.

As of 1:45 p.m. EDT, Nikola's shares were down about 4.9% from Tuesday's closing price. 

So what

Nikola's stock has had a torrid run since it went public via a reverse merger with VectoIQ Acquisition in early June. 

NKLA Chart

NKLA data by YCharts.

But that run hit a speed bump on Monday, when a note from a J.P. Morgan analyst gave excited investors some food for thought.

In that Monday note, J.P. Morgan analyst Paul Coster initiated coverage of Nikola with a neutral rating and a price target of $45. (For context, Nikola's shares closed at $65.90 last Friday.) Coster said that while Nikola is "poised to disrupt" the transportation industry with its deployment of hydrogen refueling infrastructure and upcoming fuel-cell-powered electric tractor-trailers, risks remain high given that the company currently has no revenue.

A silver Nikola Badger, a sleek electric pickup truck.

Nikola plans to reveal its Badger pickup on June 29. Will that be a catalyst for the stock? Image source: Nikola Corporation.

Now what

Long story short: While Coster believes that Nikola's business model "could be compelling," he feels the stock is fully valued. He feels that auto investors should wait to see either a pullback in price, incremental positive developments, or both before getting more bullish on the shares. 

I think that take, in addition to pressure from today's broad-based market sell-off on renewed COVID-19 concerns, explains why the stock's run-up has stalled for the moment.

John Rosevear has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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