Why Nikola Stock Jumped Today




Nikola (NASDAQ: NKLA) shares are bouncing back today after a more than 10% drop yesterday. The stock of the electric semitruck maker popped as much as 12.2% Tuesday morning. Shares remained higher by 6.7% as of 12:45 p.m. ET.

Nikola stock dropped yesterday after founder and former CEO Trevor Milton received a four-year prison sentence for defrauding investors in the start-up electric and hydrogen fuel cell truck maker.

Off to a bad start

Milton was convicted last fall on two counts of wire fraud and one count of securities fraud. He founded the company in 2015, but stepped down as CEO and left the company in September 2020. That was about three months after the company went public through a special purpose acquisition company (SPAC) merger, and it made Milton a billionaire on paper.

But Milton was found to have falsified the progress that Nikola had made on the development of its electric trucks. That led investors to drive up the valuation of the company, enriching Milton along the way.

Investors today seem to be realizing that Milton isn’t part of the company anymore, and in fact, has been at odds with current management for months. While the stock dropped on the news of his sentence yesterday, the company itself is making progress on its business plans. That explains why shares are bouncing back today. But the question for investors is where the company — and its stock — go from here.

Still a long shot

While the stock bounced back today, it remains down about 60% for the year. That’s because it still has a very long path to get to sustained success and profitability. Speculating on Nikola as a stock means believing in the growth of its hydrogen fuel cell powered trucks.

If a market and the infrastructure for that product don’t materialize, Nikola won’t be a viable company. Former CEO Milton has nothing to do with how that plays out now, though. That helps explain why shares bounced back from yesterday’s drop.

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Howard Smith has positions in Nikola. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Why Nikola Stock Jumped Today was originally published by The Motley Fool

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