A lot of people in the stock market want Nikola Corporation (NKLA) to be the next Tesla. Unfortunately, the company filed a prospectus allowing shareholders to dump a large amount of shares that will cause an overhang on the stock.Nikola has yet to generate revenues from vehicle sales, yet the stock already has a market value of $21 billion, an amount approaching the level of Ford. The company has the innovative promise similar to Tesla in the vehicle space with the goal of building a fleet of hydrogen fuel-cell electric trucks, but the hype extends far beyond reality here and the selling shareholders know this.20% of the SharesThe company only went public on June 4 via a merger with VectoIQ, yet shareholders are already getting ready to leave. You can’t blame them with the stock soaring from below $15 before the deal was announced to above $90 at the high point.A few weeks ago, the company filed a prospectus to allow shareholders to unload 23,890,000 warrants and 53,390,000 shares for a combined 77,280,000 shares at a future date. The good news is that Nikola will receive the $11.50 value per warrant for total aggregate proceeds of $275 million. The bad news is that shareholders want to sell over 20% of the company, giving the stock an overhang until these shares are sold.As a result, Nikola will have around $1.0 billion in cash to fund operations.Not Close to Tesla YetThe market is already assigning a Tesla valuation to a company without a production vehicle. At the end of 2019, Nikola listed 14,000 orders for a $10 billion backlog. The company now lists orders of up to $14 billion.The issue here is that full production isn’t expected until 2022 or possibly 2023 at the earliest. Tesla didn’t see its stock surge beyond $40 until back in 2013 when revenues reached $2 billion.The electric vehicle company had a long-proven concept with questions only surrounding Elon Musk’s ability to scale operations to justify the share price. After reaching $2 billion in revenues in 2013, the company took four years to generate $14 billion in total revenues.Nikola might have a large order book, but it is going to take a considerable amount of time for it to ramp up production. Tesla provided a prime example of how even a cutting-edge manufacturer struggled mightily to meet production targets for years.TakeawayThe key investor takeaway is that the valuation for Nikola far exceeds where Tesla traded, even when the latter already had a strong business. Although it’s unclear whether all shareholders will dump these shares, investors should sit on the sidelines until the overhang is gone.The pre-revenue company is fully valued, with NKLA pricing in perfection for an unproven business model. Even J.P. Morgan analyst Paul Coster has a $45 price target on the stock, based on potential 2027 EBITDA of $1.7 billion. Anytime analysts start using numbers out seven years, investors better beware. To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.Disclosure: No position.
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