It's fair to say there's been a lot of speculation in share markets since the March 2020 COVID-19 crash.
Of course, the stock market's spectacular recovery out of that trough has made decent money for many people — including first-time investors.
But nothing probably represents that speculative fervour better than the enthusiasm for a particular US company.
Saxo Markets this week revealed that the 4th-most traded stock among Australians last month was Rivian Automotive Inc (NASDAQ: RIVN).
The electric truck maker made its debut on the NASDAQ on 12 November, Australian time, and quickly captured the imagination of investors.
The stock was listed at US$78 per share but within a week, it hit a high of US$179.47.
And it seems Australians were definitely part of the craziness.
The trouble is, Rivian has so far only made a handful of cars, mostly driven by employees and a select few outside the business. The company has not recorded any revenue yet.
Even at the current stock price of around US$90, the market capitalisation is US$76 billion. That's pretty much the same as Ford Motor Company (NYSE: F) and General Motors Company (NYSE: GM), which rake in annual revenues in the hundreds of billions.
What is going on?
Why investors are going mad for Rivian
Australians are going nuts for Rivian because they want to experience the same windfall that Tesla Inc (NASDAQ: TSLA) shareholders have.
Those lucky souls have seen their money multiply 10 times over the past 2 years as the world awoke to the realisation that electric vehicles would eventually dominate.
And who wouldn't want to emulate that?
"Traders are excited to back the next reportedly big electric vehicles startup, with Rivian Automotive Inc seemingly being that meteor to grab onto," stated Saxo in its Australia's 10 Most Popular Stocks in November report.
Rivian supporters point out that e-commerce giant Amazon.com Inc (NASDAQ: AMZN) owns a reported 20% of the business and has an order for 100,000 delivery vans to be fulfilled by 2030.
Why investors should be wary of Rivian
But the trouble is, backing a zero-revenue business — let alone one that's not making a profit — carries a big risk.
The Saxo report pointed out that even if Rivian reached its estimated revenue of US$9.4 billion, the money left over after expenses would not amount to much.
"Based on Rivian reaching Tesla's operating margin of 9.6% and a 25% cash tax rate, this would equate to a net operating income of US$677 million after taxes."
For Saxo Bank head of equity strategy Peter Garnry, the possible financials just do not justify the current valuation.
"Assuming the cost of capital of 10% — primarily equity financed with a high beta and early-start risk premium — and we play with the thought that this revenue/orders were a perpetuity and it could pass on inflation of 3% in the future, then this cash flow is worth [a market cap of] US$10 billion today."
The Motley Fool US' Jason Hall, in a video recorded just before Rivian's listing, could not quite reconcile the numbers either.
"I just can't wrap my head around buying what's essentially still a start-up," he said.
"This is still a start-up, they're still basically pre-revenue. Start manufacturing 100,000 cars a quarter, and then we can have a conversation about whether I think it's an investable company."
