During the last 12 months, Rivian (NASDAQ: RIVN) shares have stayed below $20. That’s a long way from its all-time high of around $130. If you have been looking for one growth stock with significant upside potential, this could be your opportunity. However, there are two things in particular that you should know before you jump in.

It’s not hard to see how Rivian’s stock could have immense upside. The electric vehicle maker’s stock trades at just 3.2 times sales, while other electric vehicle makers trade between 10 and 14 times sales. There could be 200% to 300% upside alone if its valuation reflected those already achieved by competitors such as Tesla i Lucid Group.

What’s stopping Rivian? Two things in particular.

First, their sales growth rates are now in the negative, while their historical growth rates were consistently double digits, sometimes even triple digits. Sales fell by a third last quarter, while competition saw their sales bases grow. Lucid grew sales 45%, partially driven by its low total sales, which still stand at just $730 million against Rivian’s $4.6 billion sales base.

Tesla posted negative sales growth in 2024 as a whole, but was able to return to positive last quarter due to its diversified sales pipeline. Not only does it sell luxury cars like the Model X and Model S, it also offers more affordable models like the Model 3 and Model Y, both of which are available for less than $50,000. When consumer trends change, Tesla has enough variety of vehicles to absorb that changing demand. Rivian, meanwhile, has just two luxury models, both costing about $100,000. If consumers cut back on spending, there are currently no cheaper models to attract more spendthrift buyers.

The second factor holding back Rivian’s valuation is its inability to be profitable. It’s still losing money on every car it makes, while Tesla has maintained positive gross profits for years. Lucid, while still losing money, at least has significantly higher sales growth to maintain its valuation premium.

The good news is that these two headwinds could soon turn into tailwinds for Rivian. In 2026, it plans to release three new mass-market vehicles, all of which will debut under $50,000. This will diversify their lineup in a similar way to what Tesla has achieved. When Tesla launched its vehicles into the mass market, its sales base doubled and then tripled. Rivian could experience the same sales ramp, which should significantly improve its valuation multiple.

The story continues

As for the company’s inability to reach profitability, investors won’t have to wait until 2026. We should get some big news in a few weeks.

Earlier this year, Rivian’s CEO told CNBC that Rivian will achieve positive gross margins by the end of the fiscal year. That fiscal year ends on February 20. If the company achieves this milestone, it should dramatically improve the company’s ability to survive until it can launch its vehicles into the mass market. This should result in a considerable improvement in the company’s valuation multiple. But will Rivian really achieve positive gross margins in the coming weeks?

As you can see, Rivian has made progress in improving its gross margins since going public. However, it has still racked up a gross loss of nearly $2 billion over the past 12 months. Last quarter, its gross profit was negative $392 million, meaning Rivian is losing tens of thousands of dollars for every car it sells.

Can Rivian close the gap to zero in just 90 days, the length of a single fiscal quarter? That remains to be seen. But during last quarter’s earnings announcement, Rivian’s management reiterated that it is “on track” to achieve positive gross profit in the fourth quarter. If that comes true, the stock is likely to be a buy below $20. However, given the company’s depressed valuation, the market remains clearly skeptical.

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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Tesla. The Motley Fool has one disclosure policy.

Should You Buy Rivian While It’s Under $20? was originally published by The Motley Fool