Nikola ( NKLA Quick Quote NKLA - Free Report) has recently been on Zacks.com's list of the most searched stocks. Therefore, you might want to consider some of the key factors that could influence the stock's performance in the near future.
Over the past month, shares of this pioneer in zero-emission trucks have returned +5.7%, compared to the Zacks S&P 500 composite's +0.9% change. During this period, the Zacks Automotive - Domestic industry, which Nikola falls in, has gained 17.2%. The key question now is: What could be the stock's future direction?
Although media reports or rumors about a significant change in a company's business prospects usually cause its stock to trend and lead to an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.
Earnings Estimate Revisions
Rather than focusing on anything else, we at Zacks prioritize evaluating the change in a company's earnings projection. This is because we believe the fair value for its stock is determined by the present value of its future stream of earnings.
We essentially look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest business trends. And if earnings estimates go up for a company, the fair value for its stock goes up. A higher fair value than the current market price drives investors' interest in buying the stock, leading to its price moving higher. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.
For the current quarter, Nikola is expected to post a loss of $0.15 per share, indicating a change of +46.4% from the year-ago quarter. The Zacks Consensus Estimate has changed +12.1% over the last 30 days.
The consensus earnings estimate of -$0.71 for the current fiscal year indicates a year-over-year change of +36%. This estimate has changed +4.2% over the last 30 days.
For the next fiscal year, the consensus earnings estimate of -$0.50 indicates a change of +30.1% from what Nikola is expected to report a year ago. Over the past month, the estimate has remained unchanged.
Having a strong
externally audited track record, our proprietary stock rating tool, the Zacks Rank, offers a more conclusive picture of a stock's price direction in the near term, since it effectively harnesses the power of earnings estimate revisions. Due to the size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, Nikola is rated Zacks Rank #2 (Buy).
The chart below shows the evolution of the company's forward 12-month consensus EPS estimate:
12 Month EPS Projected Revenue Growth
While earnings growth is arguably the most superior indicator of a company's financial health, nothing happens as such if a business isn't able to grow its revenues. After all, it's nearly impossible for a company to increase its earnings for an extended period without increasing its revenues. So, it's important to know a company's potential revenue growth.
For Nikola, the consensus sales estimate for the current quarter of $16.02 million indicates a year-over-year change of -33.9%. For the current and next fiscal years, $103.4 million and $405.5 million estimates indicate +103.4% and +292.2% changes, respectively.
Last Reported Results and Surprise History
Nikola reported revenues of $15.36 million in the last reported quarter, representing a year-over-year change of -15.3%. EPS of -$0.20 for the same period compares with -$0.25 a year ago.
Compared to the Zacks Consensus Estimate of $14.68 million, the reported revenues represent a surprise of +4.62%. The EPS surprise was +16.67%.
The company beat consensus EPS estimates in each of the trailing four quarters. The company topped consensus revenue estimates two times over this period.
Without considering a stock's valuation, no investment decision can be efficient. In predicting a stock's future price performance, it's crucial to determine whether its current price correctly reflects the intrinsic value of the underlying business and the company's growth prospects.
Comparing the current value of a company's valuation multiples, such as its price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), to its own historical values helps ascertain whether its stock is fairly valued, overvalued, or undervalued, whereas comparing the company relative to its peers on these parameters gives a good sense of how reasonable its stock price is.
The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to both traditional and unconventional valuation metrics to grade stocks from A to F (an An is better than a B; a B is better than a C; and so on), is pretty helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.
Nikola is graded F on this front, indicating that it is trading at a premium to its peers.
Click here to see the values of some of the valuation metrics that have driven this grade. Bottom Line
The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about Nikola. However, its Zacks Rank #2 does suggest that it may outperform the broader market in the near term.