What happened
Rivian Automotive (RIVN -2.27%) shareholders are having a rough week, with the stock hitting its all-time low price level. As of Thursday afternoon, Rivian stock has dropped nearly 15% this week, while the technology-filled Nasdaq Composite index has only declined about 2%, according to data provided by S&P Global Market Intelligence. The question is whether that makes it a good time to buy or add shares, or if this week's decline is a sign of more to come. The answer just may be yes to both.
So what
First, Rivian disappointed investors with its 2023 full-year production forecast it released last week. The company said it is throttling back some production plans and expects to manufacture 50,000 electric trucks and vans this year. That's double what it did in 2022, but it came up short of what analysts expected. The company followed that with an announcement for a new convertible bond offering to raise up to $1.5 billion.
Image source: Rivian Automotive.
Now what
The bond offering would represent over 10% of the company's market cap if they are fully converted to common shares. That dilution to existing shareholders is what really drove shares lower this week.
But the stock's valuation is also what investors are eyeing. At its recent market cap of over $13 billion, it will take some time for the company to generate sales and eventually profits to justify that value. Even if it delivers the volume of electric cars it expects this year, that would only mean revenue of about $4 billion for the full year.
With a forward price-to-sales ratio of about 3, the stock would look like a decent value should it execute its long-term growth plans. That's why this week's decline could be a good time to start gradually building a position in Rivian.
