Ayro, Inc. (AYRO) is a relatively new player in the electric vehicle (EV) space. The company administered a reverse merger with DropCar, Inc. on May 29 last year, combining shares through a five-for-one reverse stock split and stock dividend offering. Shares of AYRO have gained 175.1% over the past year, and 91.8% over the past six months.
As a B2B company, AYROP’s EVs have been highly demanded from businesses nationwide given the rising need for robust delivery systems. The company plans to produce and deliver 20,000 light-duty trucks and electric delivery vehicles over the next three years in partnership with Karma Automotive’s Innovation and Customization Center. In this regard, AYRO has expanded its Austin manufacturing facility to build approximately 600 vehicles per month.
While the company’s operations look good on paper, AYRO is a relatively unknown name in a highly competitive industry. Many well-known companies, such as Tesla, Inc. (TSLA) and Nikola Corporation (NKLA), have diversified portfolios of electric trucks, with extensive pre-orders. With limited earnings growth potential in a highly crowded industry, AYRO’s stock is relatively overvalued. Because of an ongoing sector rotation by investors away from overvalued stocks, shares of AYRO have declined 7.2% year-to-date, and 19.8% over the past month.
Here’s what we think could drive AYRO stock in the near term:
The EV industry has been gaining traction, with many companies announcing unique product pipelines and innovative designs. Given the positive outlook of the EV industry, driven by regulatory support and expanding demand, AYRO’s revenues rose 80% year-over-year to $1.60 million in fiscal 2020. President Biden’s proposed infrastructure stimulus plan, with its provisions to promote the EV industry, along with rising oil and petroleum prices, have incentivized consumers to switch to EVs. This will likely accelerate the phasing out of internal-combustion vehicles ahead of schedule. Furthermore, with $174 billion in direct investment in the EV space, the domestic EV market is expected to become more competitive globally, providing domestic EV makers the opportunity to expand their businesses abroad.
Weak Financials and Liquidity
Despite having a market capitalization of $207.76 million, AYRO has generated $1.60 million in revenues over the past year. The company’s operating margin and profitability are negative, with trailing-12-month gross profit and net income of negative $166,480 and $10.76 million, respectively. The company’s trailing-12-month gross profit margin and return on sales came in at negative 10.38% and 671.01%, respectively. Moreover, its trailing-12-month ROE is negative 54.6%.
Although the company has a trailing-12-month cash balance of $36.54 million, it has yet to pay off its relatively small debt of $1.15 million. Also, without adequate cash flows, the company’s ability to bear the debt’s interest expense is uncertain. AYRO’s trailing-12-month net operating cash flow and levered free cash flow stood at negative $10.02 million and $6.54 million, respectively.
In terms of forward price/sales, AYRO is currently trading at 7.53x, 461.6% higher than the industry average1.34x. The stock’s forward EV/EBITDA ratio of 108.59 is significantly higher than the industry average 12.20.
The company’s trailing-12-month price/book multiple of 4.06 is 9.8% higher than the industry average of 3.70.
Unfavorable POWR Ratings
AYRO has an overall rating of F, which equates to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
AYRO has a D grade for Value, and F for Quality. The stock’s premium valuation and depressed operating margins justify these grades.
Of the 53 stocks in the B-rated Auto & Vehicle Manufacturers industry, AYRO is ranked #49. In addition to the grades we’ve highlighted, one can check out additional AYRO Ratings for Sentiment, Stability, Momentum, and Growth here.
Click here to view the top-rated stocks in the Auto & Vehicle Manufacturers industry.
As a leading manufacturer of purpose-built EVs, shares of AYRO have risen significantly over the past year. However, the company’s operations in a highly competitive industry and its declining profit margins pose a significant barrier to the company’s growth in the near term. Thus, we think the stock is best avoided now.
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AYRO shares were trading at $5.51 per share on Monday afternoon, down $0.39 (-6.61%). Year-to-date, AYRO has declined -9.38%, versus a 10.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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