Last Friday, David Michery, CEO of California-headquartered electric vehicle start-up Mullen Automotive (NASDAQ:MULN), wrote his shareholder a letter. “The company has received numerous requests to respond to the ongoing decline of our stock,” Michery noted, and “as CEO of this company, I take all shareholders’ concerns seriously.”
Michery feels shareholders’ pain, admitting that he is personally: “very disappointed by the performance of our stock,” which he says does not “even closely resemble the company’s actual value.” He also implies that he’s suffered financially from Mullen’s stock performance, having “personally recently purchased stock,” as well as overseen a share buyback program on Mullen Automotive’s behalf.
So what exactly are Michery (and Mullen shareholders) upset about?
Well, not to put too fine a point on it, but Mullen (and Michery) are mad because on August 11 they instituted another reverse stock split and… it didn’t work at all.
Two weeks or so ago, with a share price that was languishing deep in penny stock territory — $0.11 per share — Mullen took every nine, eleven-cent shares that Mullen shareholders owned, and replaced them with a single new share worth $0.99. As the share price drifted higher, this move briefly lifted Mullen’s share value above the $1 threshold required to maintain a Nasdaq listing — but within a few days, enthusiasm flagged and Mullen’s share price began falling again.
Priced at $0.64 today, the stock has fallen about 37% from its value on reverse split-day. And yes, that has to be frustrating for Michery and for Mullen shareholders, but it’s worth asking what else has happened over the past two weeks that might be causing the stock price to slide.
First and foremost in this vein is the fact that, on August 16, Mullen reported its Q3 financial results. These results included an update that Mullen has:
- taken on $100 million in new preferred debt (bringing total cash and equivalents to more than $200 million);
- confirmed that the company has begun booking revenue from electric vehicle sales (specifically, Campus EV Cargo Vans), and
- made progress preparing to produce multiple other EVS (Class 1 and Class 3 commercial vehicles, Mullen FIVE and Bollinger B1 and B2 EVs, Class 4 – 6 Commercial Vehicles, and even a “Mullen-GO” urban commercial delivery vehicle).
Where Mullen has not made much progress, unfortunately, is in the direction of actually earning a profit. Total losses for the third fiscal quarter of the year came to $11.14 per share — i.e. 17 times more than those shares are currently worth. Arguably even worse, these losses nearly tripled over the $4.26 per share that Mullen lost in last year’s Q3.
Mullen also reported about $128 million in cash burn over the past nine months. Run-rated out, that works out to an annual cash-burn rate of about $170 million, suggesting that the $200 million cash hoard that Mullen is so proud of amassing… will last only a little more than a year. In fact, Mullen might run out of cash sooner than that if management follows through on a plan to spend $25 million of its money on share buybacks.
Given Michery’s conviction that Mullen’s ever-falling share price does not “even closely resemble the company’s actual value,” spending cash to buy back stock may seem like a smart choice to this CEO. Investors, however, seem to disagree.
Overall, MULN has a Smart Score of 1 (out of 10) on TipRanks, meaning that it is likely to underperform the market. (See MULN stock analysis)
Smart Score is TipRanks’ proprietary quantitative stock scoring system that evaluates stocks on eight different market factors. The result is data-driven and does not involve any human intervention.
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured author. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
