Laugh If You Want, but This Trash Deal Is a Coup for Nikola Stock
Not so long ago I created a profile Waste management (NYSE:WM) and the enormous financial opportunity in the waste disposal business. There is another way to delve into this lucrative niche, albeit indirectly, and that is through a position in Nikola (NASDAQ:NKLA) Shares. This isn’t the only reason to own Nikola stock, but it’s a good reason.
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Of course Nikola has more to offer than the garbage disposal corner. To be an informed investor in NKLA stock, you need to believe in the future of electric vehicles in general, not just for this one particular purpose.
Nevertheless, it is interesting to see waste management as an important application for Nikolas electric vehicles. With this development, perhaps an electric vehicle monster Tesla (NASDAQ:TSLA) has to share the road with brave and innovative youngsters.
A closer look at Nikola Stock
After going public through a special acquisition company or SPAC, Nikola shares were available for public trading on June 4th of this year. So the history of this stock doesn’t go back very far.
Even so, Nikola stock has moved quite a bit. Shares opened at $ 37.55, but it wasn’t long before they fell to $ 33.97. However, that was only the beginning of a wild ride for this volatile stock.
Nikola stock price hit the $ 80 level by June 9, but then bears stepped in, pushing the stock back down to $ 63 by June 26. As the old saying goes, trees don’t grow straight to the sky, which means we can don’t expect a stock to simply rise in a straight line with no retreats.
Another important factor is the Tesla effect. Since Tesla is the best known company in this niche, Nikola stock sometimes mimics the movements of Tesla stock. Therefore, Nikola shareholders should closely monitor the performance of these two stocks.
Time for a little trash talk
On August 14, Nikola stock closed at $ 45.96, well below its June high. Combined with an important catalyst, this means that the stocks can be bought at a reduced price.
The catalyst in question is a groundbreaking deal with the waste disposal company Republic services (NYSE:RSG) ordered 2,500 battery-powered trucks from Nikola.
Some people may make fun of trash haulage, but this deal is a big coup for Nikola. As reported by Global Market Insights, Inc., municipal waste management in the United States is projected to have a market of $ 16 billion by 2026.
So the skeptics can make fun of anything they want, but trash is king and Nikola is gaining market share with the Republic Services deal. If I had to identify the two largest U.S. garbage trucks, Republic Services would be one of them (while Waste Management would be the other).
The analysts weigh in
When the trading community got the news of this encouraging development, they briefly increased the Nikola share price by 22%. Suffice it to say, the dealers wholeheartedly endorse the deal between Nikola and the Republic.
I can’t really blame them as this deal is the largest single deal in waste management. All in all, this is an important milestone for the garbage disposal and electric vehicle market.
Overall, analysts seem to agree that this is optimistic for Nikola. Deutsche Bank analyst Emmanuel Rosner described Nikola stock as a “short-term catalyst purchase”, while Cowen analyst Jeffery Osborne described the potential for “lower operating and maintenance costs over the life of the vehicle” with Nikola’s efficient garbage trucks noted.
In the meantime, Osborne and JP Morgan analyst Paul Coster have issued buy recommendations for Nikola shares. I’m not always on the side of big-name analysts, but given the potentially transformative Republic deal, I’d say the experts did everything right this time around.
The bottom line
The delivery of electric vehicles for garbage disposal will now play an important role in Nikola’s business model. That should be perfectly fine for long-term Nikola stock investors.
Some people might think trash is ridiculous, but an extremely lucrative deal means Nikola shareholders will soon be laughing all the way to the bank.
At the time of this writing, David Moadel did not hold a position in any of the above securities.