Think It's Too Late to Buy Rivian? Here's the Biggest Reason Why There's Still Time.

I wrote a lot about Rivian Automotive (NASDAQ: RIVN) earlier this year, arguing that shares are criminally undervalued versus their long-term potential. After a long stretch of share price weakness, the market has finally started to shift its sentiment. Since the beginning of November, for instance, Rivian's stock value has increased by roughly 40%.

Are shares still undervalued? Read on, and the answer might surprise you!

Only scratching the surface yet

As an emerging electric car stock, Rivian's future is far from settled. Less than 10% of cars sold in the U.S. this year have been electric vehicles (EVs). The company has only two models in the market today: the R1T and the R1S. Both sell for around $100,000 apiece -- far more expensive than most consumers can afford. So when it comes to industry growth and Rivian's ability to grow within that industry, it's just getting started.

The biggest event to get excited about isn't occurring this year. It may not even occur next year. Sometime likely in 2026, Rivian could begin deliveries on three mass market vehicles: the R2, R3, and R3X. All three models are expected to debut for under $50,000, allowing Rivian to tap the mass market like never before. When Tesla debuted its mass market vehicles -- the Model 3 and Model Y -- sales hit a huge inflection point, doubling and then tripling in the years that followed. Rivian's mass market vehicles could do the same for its sales base, massively improving the company's valuation.

RIVN PS Ratio data by YCharts.

Here's the problem: This inflection point is still several years away. In the meantime, Rivian's share price -- although still relatively cheap at 3.1 times sales -- will remain volatile. The recent share price surge is testament to this reality. I still love Rivian as an investment long-term given the potential of its mass market models, even at today's higher valuation. But if you jump in now, be prepared to double down if shares show weakness again -- a strong possibility given few major catalysts will arrive until 2026.

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