Electric vehicle (EV) maker Lordstown Motors Corp. (RIDE) develops and manufactures Endurance, a full-size electric pickup truck for sale to fleet customers. RIDE went public last year through a merger with a special purpose acquisition company, DiamondPeak Holdings. However, shares of the electric truck maker have declined 4.5% over the past five days after the company confirmed that the U.S. Department of Justice is investigating matters related to its SPAC merger deal last year and the reporting of its pickup truck preorders. The company is headquartered in Lordstown, Ohio.
Moreover, RIDE’s shares have slumped 57.4% so far this year. This decline can be attributed primarily to investors’ concern surrounding the lawsuits the company is facing just when it is about to launch its pickup truck, the Endurance.
RIDE’s stock is currently trading 73.1% below its $31.8 all-time high. In addition to the ongoing probe and lawsuits, the company’s recent statement that it does not have sufficient funding to begin producing its electric truck at scale could worsen matters. Given these circumstances, we think the stock could suffer further declines in the near term.
Here is what we think could influence RIDE’s performance in the upcoming months:
This month, the U.S. Justice Department commenced investigating RIDE, following the Securities and Exchange Commission’s (SEC) probe into the company and the statements made by its executives. The electric truck startup recently confirmed that the DOJ is inquiring into the company’s reverse merger deal and preorders for its forthcoming EV truck. In addition, RIDE’s CEO Steve Burns’ inaccurate claims relating to the preorders for commercial fleets are being investigated by the U.S. Attorney’s Office for the Southern District of New York. Finally, the company’s CEO and CFO recently exited the startup after an internal investigation found the public comments made by the executives to be misleading.
In May, Kaskela Law LLC, the Schall Law Firm, the law offices of Frank R. Cruz, and several other law firms filed a class-action lawsuit against RIDE on behalf of its shareholders. Also, lawsuits have been filed against certain directors and officers of the company over possible fiduciary duty breaches. Moreover, Lifshitz Law Firm, PC, has filed a class action complaint against RIDE alleging that it misled investors by reporting false statements. Since these lawsuits have raised investors’ concerns about the stock, its share price could plummet further.
Weak Earnings Estimates
A consensus EPS estimate for the current quarter (ended September 2021) indicates an 18.9% decline year-over-year. RIDE’s EPS is expected to decrease 96.2% from the prior-year quarter in the current year. Analysts expect the company’s EPS to decline at the 34.2% rate per annum over the next five years. Furthermore, the stock could not beat the consensus EPS estimates in three of the trailing four quarters.
RIDE reported a $106.21 million operating loss, representing a 785.8% increase year-over-year in the first quarter, ended March 31, 2021. Its net loss amounted to $125.21 million, compared to $11.87 million in the prior-year period. RIDE’s loss per share rose 350% from its year-ago value to $0.72. As of March 31, 2021, the company reported capex of $53 million and cash of $587 million.
RIDE’s trailing-12-month ROTC, ROA, and ROE came in at negative 16.8%, 27.5%, and 27.2%, respectively. Also, the company’s negative $127.99 million trailing-12-month cash from operations compares with the $215.92 million industry average.
POWR Ratings Reflect Bleak Prospects
RIDE has an overall F rating, which translates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. RIDE has a D grade Quality. The stock’s negative profit margin is in sync with this grade.
It has an F grade for Value and Growth. The stock’s 29.91x forward Price/Sales ratio, which is significantly higher than the 1.26x industry average, is consistent with its Value grade. And its weak earnings growth prospects justify its Growth grade.
In addition to the grades we’ve highlighted, one can check out additional RIDE ratings for Sentiment, Momentum, and Growth here.
As RIDE works to launch its first model, Endurance, federal investigations could pose the biggest threat to its growth path. Ongoing lawsuits and investigations against the company, coupled with DOJ and SEC probes into its business, could cause the shares to sink further in the coming months. As such, we think the stock is best avoided now.
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RIDE shares fell $0.24 (-2.81%) in premarket trading Monday. Year-to-date, RIDE has declined -58.62%, versus a 14.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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