The growing excitement among investors about the automotive sector going electric was reflected in the impressive rally by electric vehicle (EV) stocks in 2020. Improved automotive performance, government subsidies, and cost-efficiencies have been motivating consumers to switch to EVs. As a result, the booming EV space has been spawning new companies, arguably overcrowding the industry.
Hence, investors must acknowledge that not all the players in this booming market possess sound fundamentals. In fact, the stock prices of many EV players have been witnessing a correction this year due to investors’ concerns over the industry’s overvaluation and production delays due to a global semiconductor chip shortage. Furthermore, investors should take a judicious approach following the huge success of Reddit’s online forum r/wallstreetbets (WSB), which largely targets struggling businesses and gains from them by squeezing short sellers out of their positions. The fundamental weaknesses in most of Reddit plays have caused the short squeezes to be short lived, with the stocks declining quickly after reaching their highs.
Hence, considering the clear disconnect between the fundamentals and price levels of highly speculative Reddit favorites Canoo, Inc. (GOEV) and Lordstown Motors Corp. (RIDE), we think it’s wise to avoid them now. These stocks have witnessed significant price declines lately and are susceptible to further pullbacks.
Click here to checkout our Electric Vehicle Industry Report for 2021
Canoo, Inc. (GOEV)
Founded in 2017, GOEV is an automobile manufacturing company that designs and develops electric vehicles in the United States. The company offers B2B delivery vehicles, multi-purpose delivery vehicles, and lifestyle vehicles using skateboard architecture technology. GOEV intends to serve small businesses, independent contractors, service technicians, retailers, corporations, logistics companies, fleet managers, and others.
GOEV debuted its fully electric pickup truck on March 10, 2021 during the Motor Press Guild’s Virtual Media Day (VMD), in partnership with Automobility LA. It has deliveries scheduled for as early as 2023. However, the company is currently facing class action lawsuits from multiple law offices. GOEV has been accused of making materially false and misleading statements. According to the lawsuits, the company’s engineering services is not a viable business and will not provide meaningful revenue this year, thereby not reducing operational risk. Adding to the complaint, GOEV is expected to no longer be focused on its subscription-based business model and thus is destroying shareholder value.
GEOV is still a pre-revenue company. However, in the first quarter (ended March 31, 2021), the company opened pre-orders for its Lifestyle Vehicle and Pickup Truck and released targeted pricing for the Lifestyle Vehicle Base, Premium and Delivery models. Its capital expenditures were $12.1 million during the quarter, compared to $0.7 million during the same period last year. The company’s losses widened and its loss from operations came in at $97 million, compared to a year-ago $25 million loss.
GOEV recently collaborated with University of Wisconsin to advance electric power research and work on technologies to lower overall costs. As such, the company expects to spend in 45 million – $55 million in capital expenditures in the current fiscal year. However, GOEV’s EPS is expected to remain negative in its fiscal years 2021 and 2022.
According to GOEV’s management, the company is in the “gamma phase–which is critical to deliver the highest safety standards, reduce the chance of costly recalls and increase customer satisfaction.” However, shares of GOEV are down nearly 45% so far this year. The stock has lost 12% over the past month to close Friday’s trading session at $7.66. In terms of forward EV/Sales, GOEV is currently trading at 71.90x, 4,505.4% more expensive than the 1.56x industry average. The company is significantly overvalued in terms of forward P/S also (109.16x versus 1.42x). Hence, the stock might witness further weakness in the near-term.
GOEV’s POWR Ratings reflect this bleak outlook. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an overall F rating, which translates to Strong Sell in our proprietary rating system. GOEV has an F for Growth, and a D grade for Value, Stability and Quality. It is ranked #50 of the 57 stocks in the C-rated Auto & Vehicle Manufacturers industry.
In total, we rate GOEV on eight different levels. To see additional POWR Ratings for Momentum and Sentiment, click here.
Click here to check out our Automotive Industry Report for 2021
Lordstown Motors Corp. (RIDE)
Ohio-based RIDE focuses on developing and manufacturing light duty electric truck equipment, targeted at the commercial fleet market. Since its inception in 2019, RIDE has been developing its flagship vehicle, the Endurance, an electric full-size pickup truck, which has already received 100,000 pre-orders. In fact, RIDE introduced the SCORE San Felipe 250, a full-size EV pickup truck, last month, which has received a positive response in the market.
On March 12, 2021, popular short-selling firm, Hindenburg Research, published a scathing report on RIDE alleging that the company publicized fake orders and was silent on undisclosed production hurdles. The firm charged that RIDE has generated no revenue, has no sellable product, and has misled investors on both its demand and production capabilities. RIDE’s orders are largely fictitious, according to the law firm’s complaint, used only to raise capital, and that “the company is experiencing delays and making ‘drastic’ design modifications, putting it an estimated 3-4 years away from production.” In response to the accusation, the company said that it is on track to start vehicle production in September this year.
RIDE has scheduled a conference call for today to discuss the results of its first quarter, ended March 31, 2021. The company reported $73.7 million as research and development expenses for the full-year 2020. The company reported a net loss of more than $100 million for the year, significantly wider than the prior year’s $10.4 million loss. However, RIDE’s management expects to make capital expenditures of between $250 million and $275 million in 2021 to build a factory with increased production capacity and meet its anticipated demand for its trucks. Analysts do not expect the company to earn revenues this year and anticipate its EPS will decline 52.9% year-over-year.
RIDE closed yesterday’s trading session at $9.58, retreating 51.4% over the past three months. The recent weakness can also be attributable to Ford Motor (F) which unveiled its all-electric F-150 pickup truck last week. Notably, the stock has lost 66.5% over the past six months and is currently trading nearly 70% below its 52-week high of $31.80, which it hit last September. RIDE’s forward EV/Sales ratio currently stands at 11.52, 637.5% higher than the 1.56 industry average. In terms of forward P/S, the stock is currently trading at 18.33x, which is significantly higher than the 1.42x industry average.
It is no surprise that RIDE has an overall F rating, which equates to Strong Sell in our POWR Ratings system. RIDE also has a F grade for Growth, Value and Sentiment. It is ranked #56 in the Auto & Vehicle Manufacturers industry.
Click here to see the additional POWR Ratings for RIDE (Momentum, Stability and Quality).
Click here to checkout our Electric Vehicle Industry Report for 2021
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GOEV shares were trading at $7.75 per share on Monday afternoon, up $0.09 (+1.17%). Year-to-date, GOEV has declined -43.84%, versus a 12.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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