On Thursday, BofA Securities began covering shares of Polestar (NASDAQ:PSNY) Automotive Holding UK Plc (NASDAQ:PSNY) with a Neutral rating and a price target set at $1.25. The analyst from BofA Securities provided insights into the electric vehicle (EV) manufacturer, noting the company's potential for growth in the EV market and the nearing of a significant increase in sales volumes. The analyst also highlighted the improvement in the company's earnings profile.
Despite the positive outlook, the analyst pointed out several risks associated with Polestar, including its Chinese ownership and the possible impact of changes to U.S. trade and subsidy policies. Additionally, the analyst expressed caution regarding the company's ability to generate sustainably positive free cash flow (FCF) in the near future.
The $1.25 price objective suggests approximately a 20% potential upside from the company's current valuation. This price target is derived from an average of discounted cash flow (DCF) and EV/Sales valuations.
The analyst applied a 1.3x EV/Sales multiple, which is lower than the early trading multiples of Tesla (NASDAQ:TSLA) and the multiples used for other EV peers such as Lucid Motors (NASDAQ:LCID) (at 5x) and Rivian (NASDAQ:RIVN) (at 2x). The reduced multiple reflects Polestar's different business model and its stage of maturation relative to its peers.
Polestar's positioning as a pure-play in the expanding EV market is a notable aspect of its investment profile. The company is approaching a critical juncture where it expects to see a significant rise in sales volumes, which is a key factor in the analyst's assessment.
In summary, the initiation of coverage by BofA Securities on Polestar with a Neutral stance reflects a balanced view of the company's growth prospects against the backdrop of certain inherent risks and the timeline for achieving positive free cash flow. The price target of $1.25 is based on a comparative analysis of valuation metrics within the EV industry.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.