Shares of electric vehicle (EV) maker Rivian Automotive (NASDAQ:RIVN) have crashed nearly 40% year-to-date, and approximately 50% in the past three-month period while they are off 20% from their initial public offering (IPO) price of $78 a share back in November 2021. This definitely does not improve the case for RIVN stock.

Buying the dip now is like jumping into the waters of Antarctica without any previous experience in winter swimming. You will get shocked for sure.

There are many reasons why I do not like the RIVN stock, and valuation is on top of the list. Let’s dig into some of the other reasons as well.

Elon Musk Was Right About Rivian

A few days after Rivian went public I wrote an article titled “How Elon Musk Got It Right About Rivian and Its Irrational Valuation.”

Elon Musk said “high production and breakeven cash flow would be the ‘true test’ for Rivian.”

One of the highlights of the article was “When it comes down to it, though, this IPO price and the current price tag both simply flirt with irrationality. There seems to be a complete lack of logic here. Investors are missing what they should be focusing on with RIVN stock.” I concluded, “RIVN stock is synonymous with an epic bubble.”

Rivian shares reached a 52-week high of $179.47 in mid-November. Why?

I do not know. I cannot find words for this other than speculation is in full force. When you play with fire and danger chances are things may not end up going well.

RIVN Stock Catalysts: Irrational Exuberance Meets Reality

Rivian produced 1,015 vehicles by the end of 2021 missing its goal of 1200 cars.

The third quarter 2021 Shareholder Letter is full of valuable insights about performance, expectations, and risks investors should know about.

Rivian stated it has 71,000 R1 net preorders in the U.S. and Canada as of December 15, 2021. It intends to invest capital to improve battery technology, electric drive system and expand the production capacity of its Illinois factory from 150,000 to 200,000 vehicles per year. In other words, capital expenditures and total operating expenses are expected to rise significantly over the next quarters.

The second manufacturing facility in Georgia is expected to start its construction in the summer of 2022 to develop the next generation of vehicles.

Rivian expects production in this facility to start in 2024 with up to 400,000 vehicles annually.

This is a dilemma for Rivian management. Should they invest in the future now and risk losing two years of transformation and breakthroughs not just in the EV industry but rather in the broader automotive industry? Or should they focus more on the here and now?

There is also the expansion of the service network to be able to offer the highest customer service. This brings me to another point. We do not know yet any problems or complaints that may arise related to quality, range specification and/or endurance. It is too early right now in the lifecycles of Rivian’s models to say for certain and owners have only started to form a community.

Expect No Surprises from Rivian’s Fundamentals

I expect the trend that was evident in Q3 2021, net loss, free cash flow, to remain negative in the fourth quarter of 2021 and for the full year 2021.

There is one statement that I will monitor and, it will be trivial. Rivian in the Q3 Shareholder Letter stated:

The funds we have raised throughout 2021 offer us the opportunity to execute on our near-term objectives. We will continue to look for opportunities to pull forward investments to further accelerate our strategy.

It is hard to predict if any future stock offerings are in the cards. Though, for now, this is good news. But I personally do not think a potential stock dilution is still out of the question. It is too early to have crucial trends in key financial metrics.

Valuation of RIVN Stock

Compared to Consumer Discretionary sector Rivian has a forward price to sales (P/S) ratio of 864.75, and a forward enterprise value to sales (EV/Sales) ratio of 961.51. The median values for the sector for a Price / Sales (FWD) and EV / Sales (FWD) ratios are 1.09 and 1.32 respectively.

There is a huge difference in the sector values. And it is no surprise at all as Rivian is expected to increase production volumes but still trades at irrational levels for almost all major key financial ratios. Investors may look at the Price / Book (FWD) ratio of 2.55 for Rivian which is less than the median value of 3.00 for the sector and find an argument that the stock is a bargain.

At the peak of the irrational exuberance, Rivian had a market capitalization higher than Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM).

The Bottom Line on RIVN Stock

Over the next quarter’s deliveries numbers, margins, free cash flow, will be analyzed and there will be two sides, haters and supporters of Rivian.

I am not a supporter and not a hater either. I do not like RIVN stock as it is still an epic bubble. The road to profitability will be too challenging and I see it to be several years away. In the meantime, speculating that Rivian will change the EV industry will persist.

The numbers do not support this concept at all.

Choose reality based, fundamentals focused investing over myopic investing.

On the date of publication, Stavros Georgiadis, CFA  did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.