A 2022 Rivian R1T with a Yakima three-person tent.
Courtesy Rivian
Rivian stock has more than doubled in the past week, since the electric truck maker’s smash initial public offering. Now is a good time for investors to put on their seatbelts—because the road is undoubtedly going to get bumpy.
No, this isn’t a call to abandon Rivian Automotive (ticker: RIVN) for those who believe Rivian is the next Tesla (TSLA)—an idea Barron’s heard from a barber. And no, Barron’s isn’t a Rivian bear. We even pointed out a couple of weeks back that a $64 billion valuation for Rivian actually made some sense.
That, of course, was before the IPO, which priced above its expected range—a range that was raised from the first one proposed. And before the stock more than doubled in five trading days after the market debut.
On Tuesday, shares were above $163—up 109% from their $78 opening price on Nov. 9 and up another 9.3% in late-day trading. The S&P 500 and Dow Jones Industrial Average gained 0.7% and 0.5%, respectively.
Calling Rivian stock on fire is an understatement. But stocks that go up fast usually come down fast. This is just a call to be careful.
Rivian stock is so new it doesn’t have a relative strength index, or RSI, yet. Traders use the metric to determine, essentially, if too much good news is in a stock.
Typical RSI measures look at stock moves over two or three weeks and compare those moves to past moves. A level of 50 means the stock is moving up or down like it has in the past. A reading below 30 can mean investors are too bearish—that stocks are due for a bounce. A reading above 70 means the opposite.
Tesla’s RSI was above 90 just before CEO Elon Musk asked his Twitter (TWTR) followers if he should sell 10% of his stake and pay taxes on previously unrealized capital gains. The answer was overwhelmingly “yes,” and Musk has been selling shares for about a week. Coming into Tuesday trading, Tesla stock had dropped about 17% since the poll and its RSI fell to 53.
Technical factors, such as RSI, can tell investors what the direction or magnitude of a reaction to news might be.
Coming for Rivian will be good news like vehicle deliveries. With the stock up so much, investors might not get the pop they expect. There could also be bad news, like Wall Street launching coverage with Hold or Sell ratings.
There is, of course, no guarantee of lukewarm ratings from the Street. Analysts might choose to back Rivian at the current valuation. Growth will be rapid and pickup trucks are lucrative in the U.S. Barron’s experience, however, makes it feel like Hold ratings are most likely. That might not be enough for Rivian bulls.
And there must be a lot of bulls out there. Rivian, after all, is now worth roughly $160 billion, based on its diluted share count. That makes Rivian the third most valuable car company on the planet—behind Tesla and Toyota Motor
(TM).
Write to Al Root at [email protected]
