'Fully valued' Nikola will tumble 32% from current levels as it struggles to match lofty growth forecasts, JPMorgan says

• Risks abound for Nikola Corp. as a pre-revenue company trading at a lofty valuation, JPMorgan said in an initiation note on Monday.
• The bank rated Nikola as neutral and set a $45 price target for the electric-truck company, representing a downside potential of 32% from Friday's close.
• JPMorgan said the stock "looks fully valued" at current levels, given the company's associated risks of execution and future dilution of up to $3 billion to fund its business plan.
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Nikola Corp., a pre-revenue electric-truck company, "looks fully valued here," so "look for a pull-back," JPMorgan said in an analyst note published Monday.

The bank initiated coverage of Nikola with a neutral rating and a $45 price target, representing a 32% downside from Friday's closing price of $65.90.

JPMorgan said that it saw potential in Nikola's business model and that the company could play "a key role in the future hydrogen economy." But there are elevated risks, including a lofty valuation, future dilution to fund its business, and execution of its business plan, the analysts said.

The bank said it expects that Nikola will need to raise an additional $3 billion in debt or equity to fund its business until it turns cash-flow positive.

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"Nikola stock trades on very high multiples of distant-future revenue and EBITDA, which assume successful execution of a multi-year strategy that takes the company from pre-revenue (today) to revenue of $10 billion later this decade, from loss-making to EBITDA margins of over 12%," JPMorgan said.

The bank continued: "Conventional valuation techniques probably don't make sense for at least another two years, which gets investors in proximity to meaningful revenues on an out-year basis."

JPMorgan's 32% downside price target is in the vicinity of the short-seller Andrew Left's $40 price target for the stock.

Still, JPMorgan was constructive on Nikola's future. The firm said that Nikola was taking on a big total addressable market with an expansive plan, that customers were lining up, and that the company was operating an asset-light business model that should help it get to market fast.

Additionally, the bank assigned "zero value to the sports vehicle initiative and new H2 applications," adding that "there are potential positive catalysts that could get us more constructive on the stock."

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The sports-vehicle initiative refers to Nikola's Badger electric pickup truck, set to open up for consumer reservations on June 29. News of the Badger's reservation date sent the stock surging more than 100% in a single day earlier this month.

Shares of Nikola traded down as much as 2%, at $64.55, on Monday morning. The stock is up nearly 170% over the past month.