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Ree Automotive Ltd Cl A(REE-Q)

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Why REE Automotive Stock Sank 25.2% in January

Motley Fool - Mon Feb 7, 2022

What happened

Shares of REE Automotive (NASDAQ: REE) sank 25.2% last month, according to data from S&P Global Market Intelligence. The electric vehicle (EV) hardware stock lost ground amid a turbulent stretch of trading for the broader market.

REE Chart

REE data by YCharts.

With the S&P 500 closing out January down roughly 5.3% and the Nasdaq Composite index's level falling 9%, market momentum and increased investors aversion to growth stocks were the biggest factors in the stock's decline. However, the Israel-based EV company's announcement of a new chief financial officer (CFO) early in the month may have also factored into the performance.

REE P1, P2, and P4 automotive platforms.

Image source: REE Automotive.

So what

REE published a press release on Jan. 5 announcing that it had begun testing its new P7 platform for commercial delivery vehicles and walk-in vans. The next day, the company announced that David Goldberg would be succeeding Hai Aviv as CFO in February.

The news corresponded with bearish momentum for the broader market, so it's difficult to determine exactly how much impact the CFO announcement had, and investors had many other factors to consider last month. Macroeconomic factors including rising interest rates, high inflation, and rising Treasury bond yields set the tone for the market, and disappointing guidance from companies including Peloton, Netflix, and Tesla added to bearish sentiment. Comments from Tesla suggesting that the EV leader was still seeing supply chain headwinds and would not be debuting new models in 2022 were particularly relevant for REE.

Despite the dramatic sell-off, REE did receive some favorable analyst coverage in the month. Cantor Fitzgerald analyst Andres Sheppard initiated coverage on the stock on Jan. 14, giving it an "overweight" rating and a one-year price target of $9 per share. At the time of the note's publication, this suggested roughly 73% upside, and it suggests roughly 150% upside from the company's current share price.

Now what

REE Automotive stock has continued to lose ground early in February's trading. The company's share price is down roughly 14.6% in the month so far.

REE Chart

REE data by YCharts.

REE is still in a pre-revenue stage, but it's aiming to ramp up its business rapidly, and analysts see the company starting to generate significant sales this year. The EV specialist now has a market capitalization of roughly $825 million, and it's valued at roughly 62 times this year's expected sales. That's still a hugely growth-dependent valuation even after big sell-offs for the company's stock, and that characteristic sets the stage for volatile swings in the current market environment.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool owns and recommends Netflix, Peloton Interactive, and Tesla. The Motley Fool has a disclosure policy.

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