Dear RIVN Stock fans, mark your calendars for May 9th
Shares of Rivian (NASDAQ:SHORE) are down more than 9% today, as S&P500 and Nasdaq 100 are in the red. This comes after the Fed rising interest rates by 50 basis points (bp) yesterday, taking the rate between 0.75% and 1%. Indeed, the 50 basis point increase was the largest increase in 22 years. Additionally, the Fed has hinted at further increases of 50 basis points in the coming months. On the positive side, the Fed said a 75 basis point hike was not on the table.
RIVN stock is classified as a long-lived asset, since the basis of enterprise value lies in future cash flows. During the fourth quarter, the electric vehicle (EV) company announced $54 million in revenue, while Rivian’s current market capitalization is approximately $28 billion. At the time of this writing, it is exorbitantly priced price to sales ratio of 442.
When interest rates rise, the value of Rivian’s future cash flows when discounted to present value declines. This is because the weighted average cost of capital (WACC) in the discounted cash flow model increases in correlation with the interest rate. WACC is placed in the denominator of the model, while cash flow is placed in the numerator of the model.
Shares of the EV company are down more than 65% since the start of the year. However, there is another catalyst on the horizon that could worsen Rivian’s decline this year.
RIVN Stock IPO Block Date Falls May 9
On May 9, Rivian’s first investors will be able to sell their shares. May 9 marks 180 days after the company’s initial public offering (IPO) on November 9 last year. Indeed, 180 days after the IPO is the typical date when early investors and insiders are eligible to sell their shares.
As a result, approximately 800 million shares will be affected by the expiration of the IPO block. This does not mean that the 800 million shares will be sold. However, emphasis should be placed on Amazon (NASDAQ:AMZN) and Ford (NYSE:F), as the two companies have significant holdings. Amazon owns nearly 160 million shares, while Ford owns about 100 million shares.
Still, there is a silver lining attached to the IPO block expiration. Barrons reports that short sellers often hedge their positions after expiration. Currently, Rivian has a short percentage of float holding of around 6%.
At the date of publication, Eddie Pan did not hold (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.