Stocks of young companies typically entail high risks. Yet, if these companies become successful, their stocks can generate significant returns. Analysts and investors usually try to estimate how a new company may fare based on its plans, target market, demand for its products, management's experience, viability of its business model, financial estimates, and several other similar factors. Change in one or more of these factors may drastically impact a stock's price.
If you are convinced about a company's long-term growth prospects, its stock's fall presents an attractive opportunity to buy shares at bargain prices.
Here are three stocks whose prices have fallen significantly. Let's see if they make attractive buys right now.
Rivian
As of this writing, Rivian (RIVN 6.10%) stock has fallen nearly 48% year-to-date. Based on analysts' consensus price target, the stock has a potential upside of 147% in a year from its current level.
Image source: Rivian.
Yet, more than price targets, investors should focus on the long-term growth prospects of a company while making an investment decision.
Rivian got loads of attention when it successfully launched the first-ever electric pickup truck. The company's stock had a market capitalization of more than $90 billion soon after it went public in November 2021, and at one point its market cap rose past $150 billion. Even though Rivian looks like a promising EV company, its stock's valuation wasn't really appealing. That seems to be changing now. Rivian stock's market cap has fallen to around $48 billion.
Rivian had a solid start with its pickup truck receiving MotorTrend's 2022 Truck of the Year award and the company getting more than 71,000 pre-orders for its pickup truck and SUV. The company also has an initial order of 100,000 electric delivery vans from Amazon. The company has robust growth plans for the next several years. Rivian stock's fall has made it a bit more attractive for investors looking to enter for the long-term.
Arrival
Arrival (ARVL) stock has fallen 86% since it went public in March 2021. Based on Wall Street analysts' consensus price target, the stock has a potential upside of around 547% from its current price level.
Founded in 2015, Luxembourg-based Arrival focuses on developing electric vans and buses. The company believes that its "microfactories" can be set up with much less capital and significantly reduce EV production costs.
In November, Arrival reaffirmed the start of commercial production of its buses in the second quarter of 2022, followed by vans in the third quarter of 2022, as per its plans. Notably, the start of production of Arrival's first vehicles was earlier pushed from the fourth quarter of 2021 to the second quarter of 2022. Though the production is likely to start as planned, the company expects "significantly lower" revenue in 2022, compared to its initial estimates of more than $1 billion. That's partly because the production at its first three microfactories is expected to ramp up much more slowly than Arrival had anticipated earlier. At the same time, it shifted the construction of a fourth micro factory to 2023, citing capital constraints.
Image source: Arrival.
The revised outlook sent the price of Arrival's share price spiraling downward in November. The fall in Arrival's stock continued as EV stocks saw a broader sell-off in January. More risky names, like Arrival, saw steeper declines in their stock prices.
Arrival stock surely faces big risks. The company is behind its schedule, is expecting much lower revenue than it initially guided for, and is facing capital constraints. The competition in the EV space makes things worse for Arrival.
On the flip side, the company is still on track to start commercial production as per its plans. It has nonbinding orders and letters of intent for 64,000 vehicles. The company's partnership with United Parcel Service, under which UPS will purchase 10,000 vans from Arrival between 2021 and 2025, is still in place. If Arrival can start delivering vehicles in the coming quarter, its stock price could boost. In the long term, Arrival's ability to produce vehicles profitably and at scale should drive the company's stock price.
Nio
Nio (NIO 8.72%) stock has fallen 33% this calendar year and 63% over the past year. Based on the consensus price target, Nio stock has an upside potential of around 182% from its current price.
Nio delivered more than 91,000 vehicles in 2021. Vehicle deliveries for the year more than doubled from 2020. Nio has not only been growing its sales rapidly so far, but it will also be launching three new models in 2022, which could boost the company's sales in the coming years.
Nio's innovative Battery-as-as-Service model allows owners to swap batteries of their vehicles with new ones. The company has around 700 battery swapping stations in China. Battery swap provides a quick way to refuel if the user is short on time. It also gives the flexibility to go for a bigger or smaller battery pack, depending on changes in a buyer's needs. Nio aims to open over 1,300 battery swap stations, 6,000 fast chargers, and 10,000 destination chargers by the end of this year. So, the company is making investments for the long term.
NIO PS Ratio (Forward 1y) data by YCharts
Nio stock is trading at an attractive forward price-to-sales ratio compared to its peers, as the chart above shows.
Beyond China, Nio is already delivering cars in Norway. It is planning to enter five more countries in 2022. Despite competition, Nio has been able to make a place for itself in the fast-growing Chinese EV market and has robust plans for international markets. Considering Nio's growth so far, the stock looks appealing right now.
