A big surprise showed up on my double-net value search, a self-designed screen I've used for many years that identifies companies trading between 1 and 2 times net current asset value, or NCAV. In terms of market cap, the company in question is the largest that screen has identified in years. The stock is Rivian Automotive (RIVN) , which currently trades at 1.99x NCAV.
A company's road to trading at these levels is typically caused in large part by a declining stock price. Rivian, which went public last November at $78 jumped to $172 just days later, since has seen its price decline all the way to Tuesday's $31.40 close. Rivian shares are down nearly 70% year to date; delivery delays are at least part of the culprit.
Rivian ended its latest quarter with $16.4 billion, or just over $18.25 a share, in cash and slightly more than $1.2 billion in debt. While the current market cap is about $28 billion, the enterprise value (EV) is less than $13 billion.
If Rivian was profitable and not burning cash, the current NCAV valuation would be more meaningful, at least to this investor. However, Rivian is expected to lose money for the next five fiscal years. That's not surprising for a start-up. Revenue was just $55 million in 2021 but is expected to ramp up quickly to $13 billion by 2024 and $44 billion by 2027. However, it is a long road to profitability.
Rivian is clearly a growth story; Morgan Stanley expects that it might be the company that one day will challenge Tesla (TSLA) . This is not my cup of tea, but should be fun to watch.
More on the concept of double-nets: All else being equal, such a valuation can indicate a potentially cheap valuation, at least relative to net current assets. On the flip side, it also can identify companies that have seen their best days behind them, or, worse, are in a death spiral. Over the years, this has been fertile hunting ground for takeovers, especially when companies have a lot of cash on their books.
By way of a reminder, the formula for NCAV is current assets minus total liabilities, the product of which is divided into market cap. Long-term assets are not figured into the calculation, which can provide a margin of safety, depending on the magnitude and quality of those assets. This an underbelly of value investing; double-nets are a self-coined term based on Benjamin Graham's concept of net/nets, which Graham defined as companies trading at less than two-thirds of NCAV.
