1 More Reason To Avoid Nikola
Today. I’m going to show you 1 More Reason To Avoid Nikola As It “Tacitly Admits Securities Fraud…”
This according to short selling firm Hindenburg Research.
Here’s a brief recap of why I told you to avoid its stock in the last two articles…
If you want to read the full articles on why you should avoid Nikola use the links above.
Why Nikola Is The Most Dangerous Stock In The World
Most of the time IPO stands for Initial Public Offering… The day a companies shares become publicly available to buy or sell on a stock market.
I avoid investing in IPO’s for many reasons that fall outside the scope of this article.
But there’s another investing acronym for IPO that perfectly boils down the main reason I avoid investing in IPO’s…
It’s Probably Overpriced.
Meaning most IPO’s are massively overpriced when the shares become available on the stock market.
In times of speculation this gets even worse as IPO valuations get even higher.
This is where Nikola Corp (NKLA) comes into play.
The company was founded in 2014 and IPO’d on June 4th, 2020.
Nikola is a $16 billion market cap development stage “designer and manufacturer of battery-electric and hydrogen-electric vehicles.
Nikola’s goalsare to develop, design, and manufacture electric vehicles in the commercial trucking space. And by doing this it will take on Tesla, Amazon, and other giants in this industry.
I highlighted the key words above in bold from the company’s description because they’re the only things that matter.
When you see the term development stage when it comes to a public stock… It means the company has no operations now. This also usually means the company doesn’t earn any revenue.
And Nikola has neither as of this writing.
Here’s a screenshot of its data on Morningstar.
Here’s another screenshot from its website.
It’s not 100% true though that Nikola has no revenue.
It earned revenue in the past… Just not from its current or planned future operations.
Nikola earned $500,000 in revenue in 2019 from installing small scale solar projects.
And on a total of $500,000 in revenue over the life of its company it produced a total of $170.6 million in net profit losses since 2016.
And yet the current market value is $16 billion.
Buying Nikola shares certainly isn’t investing… It’s not even speculation… At this point people buying Nikola stock are 100% gambling.
Nikola perfectly illustrates the crazy times we’re living in now.
Could Nikola become the next Tesla, Uber, or Airbnb?
Yes. A tiny microscopic chance.
There’s a far higher likelihood of a complete implosion here.
Nikola isn’t just a dangerous stock.
It’s one of the most dangerous stocks you can buy in the world today.
And one of the most dangerous stocks I’ve seen in the 13+ years I’ve been investing.
A company with $0 revenue and $170.6 million in total losses in its current operations is valued at $16 billion on the market.
It makes no sense. But it also perfectly illustrates the crazy times we’re living in today.
That was from the first article I wrote… This is from the second one…
Since then Nikola released its first every quarterly earnings report. They weren’t good.
Today I want to tell you 2 More Reasons To Avoid its stock.
On August 5th, 2020 Nikola released its first ever quarterly earnings as a public company.
They weren’t just bad.
They were laughable for its $16 billion size.
The company is still reporting $0 in revenue from its mainline electric vehicles… Nikola said it expects to begin selling vehicles in 2021 according to the quarterly conference call.
And the only revenue the company produced was $36,000 in revenue installing solar panels on Nikola’s executive chairman – and founder – Trevor Milton’s house.
This is the 1st reason to continue avoiding its stock.
The only revenue the company produced in the entire quarter was essentially doing a favor for a member of the company.
And then on the conference call when analysts began asking tough questions to get more details about future deliveries of its electric vehicles and the timeline of selling its vehicles Nikola CEO Mark Russell got testy saying…
“What you have to trust is there’s a lot more going on than what you see in the announcements,” Russell said. “We’re having lots of conversations with lots of people, and when we are able to announce those publicly, we’re going to do it.”
Emphasis above is mine.
This is reason #2 to continue avoiding its stock.
You should never trust blindly what a company says its going to do in the future.
Over the long-term stocks are priced based on audited and verifiable results.
Not what they say they’re going to do.
And certainly not trusting them on what they say they’re going to do at some point in the future.
To illustrate this here’s what Kenneth Lay said back on August 14th 2001…
“There are no accounting issues, no trading issues, no reserve issues . . . unknown, previously unknown problems, issues . . . I can honestly say that the company is probably in the strongest and best shape . . . that it’s probably ever been in.”
If you don’t recognize the name Kenneth Lay, he was the CEO of Enron.
He said this only 4 months before Enron filed bankruptcy on December 1st, 2001 and became one of the largest financial frauds in corporate history.
I’m not saying Nikola is committing fraud like Enron did. And I don’t even have any suspicion of any fraud.
The only reason I’m putting this quote here is to illustrate to you that you should never trust what a company says its doing, not doing, or going to do.
You should only trust audited and verifiable results over long periods that make real world economic sense.
And even then, as we saw with Enron you need to be careful.
This is why investing is so hard.
As outside investors we must trust that not only the books are correct. But also, that the auditors are doing their jobs to properly check things in the financials released publicly are correct.
There is an enormous amount of trust involved already.
So, when Nikola’s CEO says you should just trust them and what they’re working toward in the future… Information that isn’t yet released publicly. And maybe not even finalized internally yet.
This is a whole other gigantic level of trust that you shouldn’t take… But it’s even more than that.
It’s a gigantic red flag.
This is so fundamental that it goes back to the now cliché saying… “actions speak louder than words.”
Back in July I told you several reasons why Nikola was one of the most dangerous stocks in the world.
Its first ever earnings release as a public company confirmed that even more.
Stay away from investing in Nikola stock.
Unfortunately for Nikola and its shareholders things are only getting worse.
On September 10th, 2020 short selling investment firm Hindenburg Research issued a scathing report on what it sees as “intricate securities fraud” in Nikola.
The report outlined 53 questions that it sent to both Nikola and the Securities and Exchange Commission (SEC).
Nikola responded to 10 of the 53 questions directly and called the report “salacious and misleading.”
Then Hindenburg released another rebuttal that said because Nikola only directly addressed 10 of the 53 questions in the report directly that it was “tacitly admitting securities fraud.”
The war of words here is entertaining but the details are what’s important.
The SEC says its now investigating these claims.
I’ve not read the full 53 question document from Hindenburg Research yet, but what I have read is convincing.
Parts of the report back up with pictured evidence many of the claims in the 53 questions. And Hindenburg said it also has text messages and emails from former Nikola employees to back up the other claims.
Frankly, it doesn’t matter though what Nikola, Hindenburg, or I say or think on this… All that matters now is what the SEC investigation finds and says about Nikola and its suspect practices.
Either way you should completely stay away from Nikola stock for the reasons I’ve already outlined above. And due to these new allegations of fraud.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.