Rivien (NASDAQ:RIVN) the action became public in 2021 with great fanfare. At the time, shares were trading at a price/sales ratio of 60. This type of valuation is generally reserved only for hypergrowth companies.
If you had invested $500 in Rivian stock the day it went public, how much would you have now? The answer might surprise you.
A $500 investment in Rivian would now be worth that much
Investing in growth stocks can be tricky. Rivian is a perfect case study. When the company went public nearly three years ago, it was generating about $500 million in annual revenue. However, over the past 12 months, total sales were around $5 billion.
In three short years, the company managed to increase its sales by almost 1,000%. But what did the stock do? Over this same period, Rivian shares have lost almost 90% of their value. A $500 investment in 2021 would only be worth $51 today. Ouch!
What is the main takeaway here? This is because a company can experience rapid growth without being a good investment. This is because the long-term investment value of the company is a direct function of its (eventual) cumulative returns, and this should determine the price you pay. Investors in 2021 simply paid too much for Rivian stock. Its revenue growth over the years has been impressive, but the market had initially expected even stronger growth. The company had unrealistically high market expectations built into its stock price.
Is Rivian stock a buy today? There is many reasons be optimistic, especially now that the valuation has fallen to a reasonable level of 2 times sales. But let Rivian’s story be a lesson to us: stock price movements don’t always follow a company’s growth trajectory.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the securities mentioned. The Mad Motley has a disclosure policy.
If You Invested $500 in Rivian Stock 3 Years Ago, Here’s How Much You’d Have Today was originally published by The Motley Fool
