Is Rivian Stock a Buy After Plunging 15%?

As a company, Rivian Automotive (NASDAQ: RIVN) has performed incredibly well since going public in 2021. Over that time frame, sales have risen by more than 1,000%, breaching the $5 billion mark earlier this year. As an investment, however, Rivian's journey has been disappointing. The stock price is down big since its initial public offering (IPO), losing roughly 15% over the past month alone.

But don't lose hope just yet. If you're looking for a stock with truly massive upside potential, this could be your chance. In fact, there's one big reason I think Rivian stock is a buy after the recent pullback.

Rivian shares are a steal for this one reason

It's hard to buy a company when the market decides it's out of favor. Instead, it's much easier to realize that a company is a buy after the market sentiment has shifted. Electric vehicle (EV) maker Tesla is a perfect example.

Would you have liked to have bought shares in 2020 when they traded for $35 apiece? Of course, you would have. The current stock price is nearly $250 per share. But at the time, Tesla wasn't as obvious of a buy as you'd think. The year before was tough for the company, with Tesla's valuation at one point falling by nearly 50%.

Difficulties scaling its Model 3 sedan later prompted Elon Musk to reveal that the business was only "about a month" away from bankruptcy. While EV demand was still growing, the category as a whole was still in its infancy, with plenty of uncertainty surrounding long-term demand forecasts.

We all know what happened next. Tesla's sales skyrocketed, and its valuation followed. Today, the company is worth more than $800 billion. Patient investors have been ecstatic that they held tough through years of doubt and volatility. While it's a difficult act to follow, there's one reason to believe Rivian is about to replicate Tesla's rise: the promise of mass-market vehicles.

In many ways, Rivian is in the same spot Tesla was in years past. Company sales are now well into the billions, with a handful of high-priced luxury models -- the R1T and the R1S -- leading the charge. Tesla, of course, is famous for its Roadster, Model X, and Model S vehicles, which, like Rivian's R1T and R1S models, helped establish it as a legitimate EV producer capable of making vehicles consumers love -- even if the initial price range was far too high for most consumers.

The major difference between the two companies today is that Tesla has several mass-market vehicles -- like the Model Y and Model 3 -- which helped propel the company from a niche EV producer to a brand seen on nearly every roadway in America. Tesla also has positive gross margins and a healthy, stable cash balance -- two things Rivian sorely lacks.

But their differences are what make Rivian shares a steal today. Rivian stock trades for less than 2 times sales, while Tesla shares trade at nearly 10 times sales. The market is right to be skeptical, as the electric car space is full of historical failures.

But over the next two years, everything could change. That's because not only does Rivian's management team expect to achieve positive gross margins, but it also intends to begin deliveries on three new mass-market vehicles: the R2, R3, and R3X, all of which are set to debut at under $50,000.

The market is right to price Rivian so cheaply right now. But the catalysts that could heavily shift this valuation discount are now established. Investors willing to take a risk today could enjoy substantial upside should Rivian achieve its near-term goals of achieving positive gross margins and the launch of its first mass-market vehicles.

TSLA Revenue (TTM) data by YCharts. TTM = trailing 12 months.

Should you wait for shares to get even cheaper?

Rivian shares are cheaper this month than last month. That's generally been the case with this emerging growth stock. Since its IPO in 2021, Rivian shares have shed nearly 90% of their total value. Ouch.

Rivian's stock price volatility demonstrates why it's typically a wise idea to use dollar-cost averaging. This strategy essentially has you buy a set amount of a certain stock on a regular timeline -- say $100 every other month. This way, you're not going all in on a certain price point, and your portfolio can benefit from temporary downswings in valuation.

Will Rivian mimic Tesla's incredible rise? The odds are stacked against it, but there's certainly a case to be made. And the current valuation of under 2 times sales is enticing enough to warrant a position. Just be sure to expect volatility and be prepared to increase your position during these sudden drops.