Nikola (NKLA) Bulls Rejoice – the Stock’s Short Volume Has Collapsed as Recent Developments Bolster Confidence

Aug 17, 2020
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Nikola Corporation (NASDAQ:NKLA) has its share of skeptics who view the company as an elaborate Ponzi scheme built on a pipe dream. With formal operations yet to commence, the company has only a limited capacity of countering this cynicism. Nonetheless, a ray of optimism has emerged in recent days as the stock’s short volume has collapsed.

As per the tabulation by the research firm Fintel, Nikola’s short volume ratio – the total number of short shares traded divided by the total shares traded each day – has collapsed from a recent high reading in excess of 30 at the beginning of August to a low of 18.42 on the 11th of August. As of the 14th of August, the short volume reading stood at 22.75, fairly close to the lower bound of the range and a far cry from the frenetic peak of over 38 in July. The chart below illustrates these wild swings:

Nikola (NKLA) Tries To Halt Its Plunge Into a Theranos-Style Abyss of Infamy by Offloading Its Controversial Executive Chairman Trevor Milton

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The following table, sourced from Fintel, gives a much more granular information regarding this metric:

Nikola

Of course, a number of recent developments have played an active role in dissipating the crushing pressure from shorts that Nikola shares witnessed in July. At the time, the stock was pummeled amid a liquidation barrage of securities held by the company’s PIPE investors. We detailed in a previous post that Nikola warrants (NKLAW) – securities that give the right but not the obligation to buy additional shares at the exercise price – became exercisable on the 20th of July, unleashing a tsunami of selling pressure that caused the stock price to collapse from $65.90 on the 1st of July to $30.00 on the 31st of July. However, the short-term selling pressure is now largely over, as evidenced by a gradual recovery of 53.2 percent in the company’s shares from their July lows.

Nikola (NKLA) Should Salvage What Is Left of Its Tattered Reputation by Offloading Its Flamboyant Executive Chairman Trevor Milton

Another factor that has boosted the sentiment in Nikola shares is the seminal announcement by the company on the 10th of August that detailed its contract with Republic Services for delivering 2,500 electric trucks. The press release noted:

“[The company has received] a minimum order of 2,500 electrified refuse trucks from Republic Services, expandable up to 5,000. This order is to begin full production deliveries in 2023 with on-road testing likely to begin in early 2022. The refuse trucks are anticipated to carry up to an industry-leading 720kWh of energy storage.”

According to the details revealed by Mr. Trevor Milton, the executive chairman of Nikola Corporation, the contract is worth an estimated $1 billion to $2 billion, depending on the final order volume. Moreover, Republic Service’s electric trucks will utilize the same powertrain as that currently being employed for Nikola Tre, thereby, producing significant cost savings. Further details were disclosed in Nikola’s pertinent filing with the SEC where the company noted:

“The electric platform is expected to offer up to 150 miles and 1,200 cans on a single charge, and the refuse trucks are anticipated to carry up to 720kWh of energy storage. The Company expects to begin full production deliveries in 2023 with on-road testing expected to begin in early 2022.”

Despite the carnage witnessed in July, investors should bear in mind that Nikola shares are still up 35 percent since the 1st of June. While the current share price represents a dramatic fall from the all-time high of over $80 witnessed on the 9th of June, it does represent a much more realistic valuation of a company that is still in the pre-revenue phase, having to contend with all sorts of logistical and production challenges.

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