Nikola Stock Rallies Again. We Have No Idea Where It’s Going.

Shares closed at $1.30 on July 6, and they’ve gained more than 100% in six trading sessions. They went as high as $2.95 on Friday, before coming off those highs to trade most recently at $2.36, up 6.3%.

Good news on Thursday started the rally. Nikola announced a 50-truck sale to hydrogen producer BayoTech, a producer of hydrogen gas. The trucks will be powered by hydrogen fuel cells and will be used to transport BayoTech’s hydrogen gas.

That’s what kicked off the rally, but 114% at the peak of Friday trading in less than two days? Short-covering may have added fuel to the rally. Short-sellers borrow stock they don’t own and sell it, betting the price will decline. If prices fall, they can buy back the stock for a lower price and return it to the original owner.

Short interest in Nikola stock is roughly 25%, according to FactSet. That is the percentage of stock borrowed and sold short compared to the total stock available for trading. That is also incredibly high. The average short interest for an S&P 500 stock is less than 2%.

Short-sellers run the risk of a squeeze when short interest is high. They all rush for the door at the same time when something positive happens and the rally feeds on itself.

Where Nikola stock can go now is anyone’s guess. Shares have fallen about 97% from their 2020 all-time high of almost $94 a share. No one expects them to approach that level. The 52-week high is about $9 a share. That may be aggressive too. The average analyst price target is $2.40 a share. But Wall Street hasn’t been much help. The average analyst price target was about $11.50 a year ago.

Investors can’t value Nikola off earnings yet. Nikola doesn’t have them. It’s still in start-up mode and needs more cash. Wall Street expects it to use more than $1.1 billion building its business between now and the end of 2025. Nikola ended the first quarter with about $200 million on its books.

For now, Nikola remains a more speculative stock. Investors can try to trade it, but they better be careful.

Write to Al Root at [email protected]