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Is NKLA Stock a Solid Long Term Investment?

Stock Market

It's not always easy to decide which type of stock would be your best option for a long-term investment. The current state of the stock market can make those decisions more difficult than they've ever been in the past. Trying to decide which stocks are good long-term investment options when weighing the scale between something that is tried-and-true and something else that is relatively new is enough to make your head spin. That said, people always say that you won't get different results unless you do something that’s drastically different. How do you know when it’s time to stop going with all of the tried and true options and start looking at something that's new, even if it does seem to be a little bit risky? If you're inclined to think on that end of the spectrum, then you might be interested in Nikola Corporation.

About Nikola Corporation

As it turns out, Nikola Corporation (traded as NKLA) is one of the more interesting options out there, but a lot of people do consider it to be a risky one as well. They've only been in business since 2014, and some stock market analysts don't think that that's long enough for them to have a truly proven track record. In addition, they're not really what you would consider your traditional type of business, manufacturing heavy-duty electric trucks and the batteries that power them. This is obviously a great idea for anyone who's in the market to create a healthier environment, but it may not necessarily translate to a healthier bank account for you if you invest in them. Even without a great deal of experience in the stock market, you’d be lying to yourself if you didn't admit that a company like this is a lot riskier than some of the others that have been around for longer. The more well-established companies tend to have their feet more firmly planted in something that isn't dependent on so many factors to go their way. Nevertheless, you might be intrigued by the possibility of investing in this company as a long-term option. If that's the case, then you should keep reading.

The Latest News

One of the reasons that this is an interesting corporation that has ended up on the radars of many would-be investors is because their stock has increased by a whopping 32% over the course of the last couple of weeks. That being said, it's also worth noting that the stock recently took a slight downturn. It only amounts to a few cents, but it’s enough to concern some people. Perhaps the thing that is so pivotal here is that the company has thus far been in prototype mode, not production mode. As a direct result, they have been getting capital from investors throughout the duration of their existence, despite the fact that they've been in business since 2014. At the moment, they are currently about to move from that phase into the production phase. This is a crucial time for them because no one knows yet how that's going to play out. It's impossible to tell if they're going to be immensely successful or fall flat on their face. The reality of the situation is that companies like them have come and gone for a number of years. So far, very few of them have managed to move from the experimental or development phase into a full-blown production phase without experiencing major hurdles.

More often than not, those hurdles have been enough to cause a number of these companies to shutter their doors. At the moment, everyone is more or less waiting with bated breath to see what's going to happen here. In the past, the company has managed to stay afloat and it's always had investors that were interested in seeing what they could do if given the opportunity. That said, there is no guarantee that they'll actually be able to make a go of things in the production phase. That fact is driven home by the lack of support that electric vehicles have received throughout the United States. As a whole, people still very much prefer convenience over worrying about the health of the planet and that means that they're not as likely to use electric vehicles in any capacity until doing so becomes as convenient as pulling up to the nearest gasoline pump. One thing the company does have going for them at the time is the fact that gasoline is prohibitively expensive. That means that people are looking for alternatives that can save them money in the long run. The problem is, the moment the price of gas decreases significantly, this desire goes away and everything goes back to business as usual.

Problems on the Horizon

At the moment, you can purchase a share of stock in this corporation for $10.03. Currently, the stock is down by 0.79%. That's not a huge amount, but there are other issues that are more deep-rooted which could potentially cause significant problems for the company in the long run. One of those problems is the fact that they were just forced to agree to pay fines in the amount of $125 million to the Securities and Exchange Commission. Why, you ask? It all comes back to the fact that they were found guilty of defrauding investors by lying about their potential for success. In short, they were found to be far less than truthful with regard to their expectations of success and they got investors to give them money based on what they had told them as opposed to what they actually knew to be true. That's a significant blow for any company, but especially when you consider the fact that they're selling something that isn't even in high demand yet. When you couple these two things together, it's possible that it might spell doom for the company. It also brings about a bigger issue. If they were willing to lie to investors in order to get them to put money up, you have to wonder what they're trying to hide. Are things far worse at the company than they would care to divulge?

If even the executives at the company don't believe in their potential for success, you have to wonder why they're still in business. In short, it's difficult to consider a company as a long-term investment option (or anything else for that matter) when they're making untruthful claims about what they believe they can do, just to get more money. They've already set a precedent that they have trouble telling the truth. Furthermore, it makes you wonder if the reason that they were lying is because they were so desperate for money that they felt that it was their only option, twisted as it was. If that's the case, then it would seem they already have one foot in the grave and another on a banana peel. Why would someone choose to invest in a company in any capacity if that's the situation they're in? That becomes even more poignant if you're considering investing in them as a long-term option. If they continue practices as they have been, there's no guarantee that they'll even be around in a few years, much less making you money in the stock market.

Past Issues

Anybody that wants to protect their money is going to think twice about investing in this company after reading the information in the above paragraph. If that doesn't cause you to stop and think, consider this. The company has had issues in the past, specifically with regard to the amount of money that they claimed they could make and what that ultimately did to their shareholders. A couple of years ago, they made some grandiose claims, got loads of people to invest by purchasing shares of stock, and then that stock tanked in a major way. As a matter of fact, it ended up losing 88% of its value in the stock market. Again, you might be asking why. It all comes back to those fraudulent claims that they made which they eventually got in loads of trouble for. Now, they have a tainted record, volatile stock that's on shaky ground on its best day, and millions of dollars in fines that they have to pay because they found it easier to lie about what they were capable of doing as opposed to telling the truth. For most investors, those are some serious red flags that are going to be very difficult to get past.

Trying to Right the Ship

If you're like most people, you're wondering what the company has done in an attempt to fix things after such a tumultuous history. For starters, the founder of the company stepped down. Supposedly, this was the reason for their Securities fraud issues and everything else that’s gone wrong with the company. Whether that is actually the case remains to be seen. As the company tries to put its past behind them and work forward, there are some important things that you need to know. Throughout 2021, the company spent $500 million on facilities that are designed to help ramp up production. That is a significant amount of cash that they're burning through, especially when you consider the fact that they've been doing this year after year. At the moment, they only have another $500 million left on the books, meaning that they're going to have no choice but to raise a significant amount of money if they want to keep going. Supposedly, they're set to deliver between 20 and 30 electric trucks to various companies throughout the course of 2022, at a cost of $250,000 each. If that actually comes to fruition, then it's possible they could actually start making some revenue. However, nothing has actually happened yet and many people are starting to wonder whether or not the company is going to come through in any capacity.

Potential Problems Raising Funds

You also have to ask yourself another question here. Is it going to be possible for the company to raise funds in the future, given its history? Despite the fact that the founder departed the company, you would expect a lot of investors to be more than wary about agreeing to invest in a company where they've been burned in the past. By the same token, it's not entirely likely that new investors will be terribly interested in the prospect either, especially if they do their research and know what type of issues the company has had over the course of the last couple of years. You might be asking yourself where that leaves the company as far as being able to eventually stand on its own two feet. The truth of the matter is that it very well may leave them out in the cold, along with anyone who decides to invest a significant amount of money in their stock. After you've done all your research, there's really no one that can make the decision for you. The choice is indeed up to you. Therefore, you have to decide whether or not this is a company that you want to invest in. If you're looking at it strictly from a numbers perspective, there's not much of a decision to make. It's very obvious that this is a company with a questionable past that hasn't been able to deliver. Until they can prove that they're capable of doing something different, it doesn't make sense to invest in them. If you're looking at the possibility of investing in them as a long-term option, your best bet would be to invest in something that's far more sound and then re-examine this company a year or two from now in order to see where they stand.

Allen Lee

Written by Allen Lee

Allen Lee is a Toronto-based freelance writer who studied business in school but has since turned to other pursuits. He spends more time than is perhaps wise with his eyes fixed on a screen either reading history books, keeping up with international news, or playing the latest releases on the Steam platform, which serve as the subject matter for much of his writing output. Currently, Lee is practicing the smidgen of Chinese that he picked up while visiting the Chinese mainland in hopes of someday being able to read certain historical texts in their original language.

Read more posts by Allen Lee

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