At almost every turn, upstart EV manufacturer Canoo (NASDAQ:GOEV) seems a dangerous investment. From the devastating market loss this year to the ultra-low share price and diminutive market capitalization, Canoo is only appropriate for extreme gamblers. That said, for options traders, the idea of betting on an eventual upswing isn’t completely irrational. While respecting the possibility of a temporary turnaround, I am overall neutral on GOEV stock.
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Something Special Could be Brewing for GOEV Stock
Generally speaking, Wall Street experts stay far away from penny stocks, especially the literal variety like Canoo. Primarily, these analysts may suffer reputational loss for first endorsing such wildly speculative fare and second for suffering hefty losses on the recommendation, which is usually how these wagers go. Nevertheless, what makes GOEV stock distinct is that not only does it have a bullish assessment but a unanimous one.
Now, let’s be crystal clear. The unanimous rating only stems from three analysts within the past three months, though the figure comes out to four if you go back to June of this year. Nevertheless, TipRanks reporter Amit Singh stated that the expert endorsement points to extraordinary upside potential.
Specifically, Singh noted that “analysts’ optimistic outlook is based on the company’s large order book, expected production ramp-up, and potential to deliver solid revenues in the coming years. It’s worth highlighting that Canoo had a $3 billion order book at the end of the second quarter. Moreover, 70% of that is from commercial customers.”
Another factor that makes GOEV stock compelling from a gambler’s point of view is its relative performance to its peers. About the closest comparison is Mullen Automotive (NASDAQ:MULN), a popular meme stock. It attracts plenty of attention from retail investors for its ambitions but consistently falls short in the market.
In the past 52 weeks, MULN plunged by 99.8%. In the past six months, it’s down almost 94%. And in the week ending Dec. 22, shares fell more than 30%. Compare that to GOEV stock, which fell 77.6%, 47.3%, and 9.7%, over the respective periods.
Let’s be honest: neither company is getting the job done for buy-and-hold conservative types. However, the data speaks for itself. Stacked side-by-side, GOEV’s volatility shows improvement.
Bearish Traders Risk Getting Knocked off Their Canoo
Based on the objective market performance, it’s difficult to imagine anyone putting GOEV stock into their retirement portfolio. However, because Canoo already suffered so much but is also experiencing a deceleration in downside, traders should be hesitant to actively short shares. Essentially, the framework sets up an extreme risk profile for bearish speculators.
First, the significant increase in big block transactions for sold calls in November and December presents huge risks for call writers if they get their traders wrong. For example, on Dec. 15, a major entity (or entities) sold 1,116 contracts of the May 17 ’24 0.50 Call.
At face value, the bearish trader assumes that by the May 17 expiration date next year, GOEV stock will not materially rise above the 50-cent strike price. If not, the risk underwriter can collect 100% premium on the trade. However, because GOEV is so far out of the money (OTM), the premium collected for taking the risk is low, only $3,588 according to Fintel.
However, let’s assume that GOEV stock soars to 50 cents. That would mean the call writer must fulfill the terms of the option. With each contract leveraging 100 shares, the call writer must sell 111,600 shares. If the writer does not own any GOEV shares, that trader must buy the shares in the open market. That translates to a loss of $55,800 minus the premium received ($3,588).
Obviously, the loss will be worse the higher GOEV stock manages to rise above the strike price. Therefore, other bearish bets – such as the selling of 10,136 contracts of the Jan 17 ’25 1.00 Call – seem outrageously risky.
Sure, it’s improbable for Canoo stock to hit $1. Nevertheless, sustained bullishness could wreck this bearish wager.
Watch the Short Squeeze
In fairness to the bears, Canoo suffers from flawed financials across the board. It’s what got GOEV stock in this mess to begin with. Therefore, it’s understandable why pessimists are targeting shares for further downside. Still, the seemingly obvious trade appears unnecessarily risky.
In addition to the precarious options framework, GOEV stock prints a short interest of 16.36% of its float. Moreover, data from a leading prime brokerage shows that the number of GOEV shares available to be shorted has started to decline recently. If this narrative plays out at other brokerages, then it’s possible that Canoo could be the beneficiary of a short squeeze.
Will that happen? Again, it’s unlikely, just like getting struck by lightning. However, that doesn’t mean that when a thunderstorm occurs, you should play golf.
Wall Street’s Take on Canoo
Turning to Wall Street, GOEV stock has a Strong Buy consensus rating based on three unanimous Buy ratings. The average GOEV price target is $2.08, implying 777.64% upside potential.
The Takeaway: GOEV Stock Should Have Been Shorted Months Ago
If you’re interested in shorting a publicly traded company, you should probably look for anything other than GOEV stock. While Canoo obviously suffers from flaws in its business and financials, bearish traders need to take huge risks for relatively minimal rewards. And all it takes is a moment of sustained bullishness for everything to go awry. For arguably most traders, it’s just not worth it.
