Rivian (RIVN -1.43%) stock went public in 2021 to great fanfare. At the time, shares traded at a price-to-sales ratio of 60. That type of valuation is typically reserved only for hypergrowth companies.
If you had put $500 into Rivian stock the day it went public, how much would you have right now? The answer might surprise you.
A $500 investment in Rivian would now be worth this much
Investing in growth stocks can be tricky. Rivian is a perfect case study. When the company went public nearly three years ago, it was generating annual sales of around $500 million. Over the last 12 months, however, total sales were around $5 billion.
In three short years, the company has managed to boost sales by nearly 1,000%. But what has the stock done? Over that same time period, Rivian shares have lost nearly 90% of their value. A $500 investment in 2021 would be worth just $51 today. Ouch!
What's the main takeaway here? It's that a company can be growing rapidly and still not make for a good investment. That's because the company's long-term investment value is a direct function of its cumulative (eventual) returns, and that should determine the price you pay. Investors in 2021 simply paid too much for Rivian stock. Its revenue growth over the years has been impressive, but the market had originally priced in even more growth. The company had too high of expectations from the market baked into its stock price.
Is Rivian stock a buy today? There are several reasons to be optimistic, especially now that the valuation has come down to a reasonable 2 times sales. But let Rivian's history be a lesson to us all that stock price movements don't always track a company's growth trajectory.
