Rivien (RIVN 0.79%) the stock has significant upside potential. But you wouldn’t know it by looking at his recent trajectory. In 2024 alone, Rivian shares have lost about half their value and are dangerously close to falling below $10 per share. If you’re willing to take on some extra risk for the chance to make 1,000% or more profits, this seems like your chance. But there are some factors you need to be aware of before you get started.

2 Reasons You Should Bet on Rivian Stock Right Now

Rivian’s stock price is in freefall this year, and the company’s sales growth clearly shows why. Revenue growth has stagnated this year, but that’s true for almost every other year. electric car walk, Tesla (NASDAQ:TSLA) Understood.

Actually, Tesla experienced a drop in revenue earlier this year as Rivian continued to grow double-digit sales. Tesla has since rebounded and its sales last quarter grew at a faster rate than Rivian. But both companies are clearly struggling right now – a period where growth in demand for electric vehicles is consistently lower than expected.

There are, however, two reasons to believe that Rivian’s predicament is about to turn a corner.

First, the company hopes to achieve positive gross margins by the end of the year. There’s still a huge gap to fill, with Rivian losing $32,000 for every vehicle sold. This figure represents a considerable improvement over previous quarters, but is still a big step up from previous quarters. positive gross profit. Tesla achieved positive gross margins quite early in its history. And if Rivian manages to deliver on its promises, we can expect the market to respond very favorably, as positive gross margins not only expand the company’s capital headroom, but also demonstrate that its vehicles can be sold profitably at a price affordable to customers.

The second event that will radically change Rivian’s destiny will be the launch of its consumer vehicles: the R2, R3 and R3X. These three vehicles – all expected to debut under $50,000 – could help replicate Tesla’s success with the Model Y and Model 3. It was these two mainstream vehicles that fueled the second and third surges of growth of Tesla. Rivian’s revenue has grown more than 1,000% since its 2021 IPO, reaching $5 billion earlier this year. But as we mentioned, sales growth has stagnated recently. These new models could allow it to double or triple its revenue base by the end of the decade.

If Rivian can achieve positive gross margins and launch its new models, we can expect its significant discount with Tesla to close quickly.

TSLA-PS ratio data by Y Charts.

Before you start, understand these risks

In my opinion, the only investors who should jump into Rivian stock right now are those who are willing to commit to diamond hands. In other words, only those who are willing to endure a lot of volatility over the next few years should get involved. There are several reasons for this.

First, it remains highly uncertain whether Rivian will actually achieve positive gross margins this year, although management has claimed that it will. Over the past few quarters, the company has managed to improve its gross margins by a few thousand dollars at a time. I expect Rivian to take this step sometime next year, but it may fall short of its promises this year, calling into question its cash flow and ability to achieve profitability in an increasingly crowded market .

The second factor that makes Rivian a tricky investment for most is that its new models – the R2, R3 and R3X – aren’t expected to hit the roads until 2026. In fact, customers might not receive some variants until 2027. Failing that, this makes Rivian a long-term investment only, with minimal hard catalysts over the next few years.

That said, Rivian’s valuation has become too cheap to ignore. The stock, for example, trades at an 80% discount to Tesla based on sales price. Even before the stock falls below the $10 mark, aggressive growth investors looking for maximum upside potential should consider getting involved. Just be sure to lower dollar cost averaging if stocks fall even further, as they have for all of 2024.