NYU's 'dean of valuation' says Nikola exists 'to make Tesla look cheap'

Published Fri, Aug 7 20203:34 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Key Points

NYU finance professor Aswath Damodaran on Friday advised investors to avoid shares of Nikola.
"Nikola exists to make Tesla look cheap," the "dean of valuation" said on CNBC's "Power Lunch."
"That's one good thing for Tesla. Now, you have something to point to and say, 'Look, we're cheap relative to Nikola,'" he added.

(This story is for CNBC Pro subscribers only.) Aswath Damodaran , the New York University finance professor, on Friday advised investors to stay away from shares of Nikola Corporation , a speculative electric vehicle stock. "Nikola exists to make Tesla look cheap," Damodaran, known as the "dean of valuation" for his company analyses, said on CNBC's "Power Lunch." "That's one good thing for Tesla. Now, you have something to point to and say, 'Look, we're cheap relative to Nikola.'" Damodaran said he does not think it's worth it to even buy a few shares of Nikola and hope the company can realize its grand ambitions for its battery-electric and hydrogen-powered trucks. "If I wanted to gamble that much...I'd buy an out-of-the-money option and hope for the best," said Damodaran, who has previously raised questions about Tesla's valuation. He told CNBC in February he sold his shares when the stock hit $640 . Nikola has not yet produced a single vehicle for sale, and this week in its first earnings report as a public company, its only revenues of $36,000 came from a solar installation for its executive chairman. Since it went public through a reverse merger in early June, investors have been attracted to the stock as it represents another way to gain exposure to electric vehicles at a fraction of the price of Tesla, which has rallied an astounding 510% in the last 12 months to trade at about $1,440 per share. A few days after the merger was complete, Nikola had a market capitalization above Ford Motor Co. Now, with shares trading around $36, Nikola has a market cap of about $13 billion. Ford's is nearly $27 billion. As the stock market has rallied from its coronavirus-driven lows in late March, questions have swirled about the valuations of tech stalwarts such as Facebook , Amazon and Apple . In general, Damodaran said he believes Big Tech stocks are "richly priced," but argued current shareholders should not feel pressured to exit their positions. As an Apple shareholder himself, he said he is going to hold onto the stock. That's because he said he feels they have "a cash machine business" — in Apple's case it is the iPhone while for Amazon it is Prime — and other key characteristics that still provide upside for the stock, such as data collection. "I think what you're seeing the market do is reward these companies for the expectation that they will find something to do with these platforms and data," he said. "Maybe there's an overreach here but at least it's based on that expectation." For people who want to open new positions in Big Tech names, he advised patience. There will likely be a pullback in price that provides a better opportunity, he said. By contrast, Damodaran said he worries about the valuations of younger tech companies like Zoom , the video-conferencing juggernaut whose popularity skyrocketed during the pandemic. At roughly $257 per share Friday, its stock is up nearly 280% so far this year. "The companies which don't have the cash machines that the Big Tech companies have, I think the market is overreaching," he said. "It is underestimating how many challenges these companies will face in getting from where they are right now, where they have lots of potential, to actually delivering on their potential."

Nikola Motor Company Two truck

Source: Nikola Motor Company

(This story is for CNBC Pro subscribers only.)

Aswath Damodaran, the New York University finance professor, on Friday advised investors to stay away from shares of Nikola Corporation, a speculative electric vehicle stock.

"Nikola exists to make Tesla look cheap," Damodaran, known as the "dean of valuation" for his company analyses, said on CNBC's "Power Lunch." "That's one good thing for Tesla. Now, you have something to point to and say, 'Look, we're cheap relative to Nikola.'"