Sometimes when it rains, it pours. That's how shareholders of Nikola Corp (NKLA) feel today. It's been a wild ride for sure. The stock spiked on June 9th, trading just below $94 a share after trading publicly just a few days earlier for the first time, at $34. The shares then spent the rest of June and most of July selling off for the most part, until rallying once again into summer's end. First it was noted short seller Andrew Left of Citron Research who correctly called a selloff of 50% or more over the next month as the shares peaked on June 9th. Left cited the firm's management as well as the nature of competition, primarily from Tesla (TSLA) as reasons why the shares were overvalued.
The story gets real tricky about two weeks back now. You all know that General Motors (GM) and Nikola had come to an agreement where they would partner up on building the hydrogen fuel cell electric pickup truck known as "the Badger." GM would also take an 11% stake in Nikola under this deal. Almost simultaneously, Nikola became the target of a report by short seller Hindenburg Research. Hindenburg claimed to "have gathered extensive evidence" detailing dozens of false statements made by Nikola founder - until this morning, Executive Chairman and board member - Trevor Milton. Hindenburg also made note that perhaps Nikola's $3.5 billion in orders might not be all it was cracked up to be. In one instance, the report notes that one customer... US Express, makes up about one-third of the firm's reservations, while supposedly only having $1.3 million in cash on hand the prior quarter.
Nikola referred to the claims as "false and deceptive". Hindenburg even accused General Motors of not having done their homework. In response, GM CEO Mary Barra claimed that GM had "performed appropriate diligence."
Bad news on a risk-off day. Shares of Nikola had closed at $34.19 on Friday. Monday morning, well prior to the opening bell, I saw these shares trading with a $24 handle, after visiting a low of $21.52. Executive Chairman Trevor Milton has stepped down. Milton tweeted: "I asked the Board of Directors to let me step aside from my roles as Executive Chairman and a member of the Nikola Board of Directors." He then added: "The focus should be on the Company and its world-changing mission, not me. I intend to defend myself against false allegations leveled against me by outside detractors."
The Securities and Exchange Commission (SEC) is looking into Hindenburg's claims. Nikola for that matter has announced the intention to fully cooperate. In the 8-K filing, Milton not only steps down from his positions with the firm, he will relinquish 100% of all performance based stock units granted on August 21st to become a consultant. There will be restrictions on how much stock Milton can accumulate going forward. He currently owns 24.18% of the company. According to the Wall Street Journal, the Department of Justice is also making inquiries.
Buy On Weakness?
It was just last Wednesday that JP Morgan analyst Paul Coster maintained the firm's "Overweight" rating on NKLA after speaking with CFO Kim Brady. After speaking with Brady, Coster appeared satisfied that Nikola had not lost any momentum with partners, customers, suppliers, or employees. Brady pointed out that some of the issues raised in Hindenburg's report predate the merger with SPAC VectoIQ Acquisition which was agreed to in March. Some issues, according to Brady, even pre-date the company's founding in 2014.
My thinking? You might buy these shares down here. This might be a lottery ticket, and most lottery tickets lose. As a matter of fact, New York State's Lotto is my longest losing streak in any sport. By far. I like to really know and understand anything I invest in. I don't know enough about this, therefore I can not fully understand it. Thus, I can not invest in the name. Now, trading is different. If one were to try a swing trade or speculate, I am not getting in the way. In fact, I'll be rooting for you, from the safety of my foxhole, over here.