If investors were judging Rivian's (RIVN 0.73%) business performance based on its 2022 stock price performance, they might guess that sales weren't doing well. After all, shares are down more than 75% year to date. But this couldn't be further from the truth. Indeed, the electric car company's vehicle production increased 67% sequentially in the third quarter, leading to a 47% bump in deliveries over the same period. Despite a huge sequential jump in deliveries, the company's preorder backlog in the U.S. and Canada for its R1 vehicles actually increased, growing from just under 100,00 net preorders in the second quarter to more than 114,000 net preorders in Q3. 

Is the discrepancy between the stock's downward momentum and the company's soaring sales a buying opportunity for investors? Or should the growth stock be avoided?

Impressive momentum

Rivian's progress should be applauded. It's difficult enough to get a new automotive company off the ground, let alone ramp up production to meaningful volumes. A testament to the company's progress, Rivian said in its Q3 update it expects to produce 25,000 vehicles this year -- up from just over 1,000 units last year. 

Management said in its Q3 update that the company's main focus remains on increasing production.

Challenges

So why has the stock been hammered this year? It seems to boil down to a few things. The first is the company's cash burn. The company's free cash flow was about negative $1.7 billion in the third quarter of 2022. While the company ended the quarter with an impressive $13.8 billion in cash, cash equivalents, and restricted cash, even this war chest could dwindle quickly if the company doesn't benefit from substantial operational leverage as its business grows.

Another concern for shareholders is supply constraints. Management said in its third-quarter update that it expects supply chain constraints to continue being a limiting factor of production. Therefore, if supply chain constraints don't ease up enough over time, it could become difficult for Rivian to achieve the scale required to become profitable. Fortunately, Rivian has some time. Management estimates that it can fund its operations with cash on hand all the way through 2025.

Valuation

Overall, Rivian's strong business momentum and its war chest of cash combine to give the electric car maker good prospects. But these factors still don't make the stock a buy. Indeed, it may be wise to avoid buying shares today. Why? The stock's pricey valuation.

With Rivian having a $19 billion market capitalization despite it being far from profitable, investors have already priced in impressive success. Indeed, Rivian already boasts a market capitalization equivalent to about 40% of Ford's -- an established automotive company that produces substantial profits and pays shareholders a robust dividend.

While Rivian's sales strength is enough for the company to make it onto an investor's watch list, it may be worth waiting to see if shares fall even more before they consider taking a position in the growth stock.