Shares of the electric-truck startup
Rivian Automotive fell Monday.
Ford Motor is the main reason, but there is something else troubling investors.
Just look at the overall market. Everything ended the day lower, including shares of early Rivian (ticker: RIVN) investors Ford (F) and
Ford is a big part of the problem for Rivian on Monday. The auto maker is planning to sell 8 million of the roughly 100 million shares of Rivian the company holds, according to multiple reports. Ford was an early investor in Rivian, and the lockup on sales of the stock by insiders following Rivian’s initial public offering in November ends Monday. Ford declined to comment on the potential sale.
Amazon expressed confidence in the auto maker. “Rivian is an important partner for Amazon, and we are excited about the future,” said a spokeswoman in an emailed statement. “Putting 100,000 electric delivery vehicles on the road by 2030 is no small feat, and we remain committed to working with Rivian to make it a reality.”
Rivian stock retreated 21% Monday. News that a large block of stock is hitting the markets can send any stock lower. Overall market sentiment didn’t help Rivian shares either. The
Dow Jones Industrial Average
closed 3.2% and 2% lower, respectively, continuing the severe selloff of recent days.
Coming into Monday trading, Rivian shares had dropped more than 14% over this past Thursday and Friday. The S&P 500 and
fell 4.1% and 6.3%, respectively, over the same span.
Tesla (TSLA) stock dropped 9.1% on the final two days of last week. Tesla shares closed down 9.1% to $787.
It just isn’t a great market for potentially disruptive, high-growth stocks. Rising interest rates and inflation have sapped some investor enthusiasm for more speculative ideas.
Growth stocks generate most of their earnings far in the future. Higher rates make those earnings worth less in today’s dollars when discounted back. The impact on growth stocks is more significant than for companies that aren’t expanding as fast because a bigger share of the high-growth companies’ profits is expected to roll in over coming years.
The impact of rates on valuation math is one reason high-growth stocks fare worse than others in rough markets. There are other reasons. For one, high-growth stocks tend to be highly valued, so they have further to fall when investors grow fearful.
Amazon trades like a growth stock, at 53 times estimated 2022 earnings. Shares were down about 4% on Monday afternoon, mainly because of the concern about rising interest rates, rather than the decline in Rivian stock.
Amazon owns about 160 million shares of Rivian, but even Monday’s double-digit percentage decline in the start-up’s stock has a miniscule effect on its $1.5 trillion market capitalization. The decline in value of Amazon’s Rivian holdings is roughly $700 million, or less than 0.1% of Amazon’s total market cap.
Ford’s market cap is far smaller, at about $57 billion, but the decline in the value of its Rivian stock holdings is still small relative to the size of the company. Ford stock was down 5.3% on Monday afternoon.
Ford’s Monday decline wipes out roughly $3 billion in market value. The decline in its Rivian holdings is about $500 million.
Ford doesn’t trade like a growth stock. Shares fetch about seven times estimated 2022 earnings. Nothing in the market—neither growth nor value stocks—has been going up recently.
Write to Al Root at [email protected]
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