Upstart EV company Lordstown Motors (RIDE) has been on a very bumpy ride this year. Indeed, shares of this pre-revenue EV play have bounced around in a seriously volatile fashion this year.
There are a number of factors that have driven this volatility, which will be explained below. However, the real question with RIDE stock for many investors is: can a stake in Lordstown be justified today as a conservative long-term investment? (See Lordstown Motors stock charts on TipRanks)
Let’s take a look at why serious investors may want to exhibit caution with this stock right now.
Series of Headwinds Forces Caution Among Investors in RIDE Stock
Many investors may already be aware of the allegations brought about by a high-profile short report issued by Hindenburg Research on Lordstown in March of this year. In essence, short sellers questioned the validity of pre-order numbers put forward by companies such as Lordstown.
Now, Hindenburg has been critical of other early-stage EV players as well in the past, so this is by no means singling out Lordstown as necessarily the only bad apple in the bunch. However, it appears these allegations have some truth to them.
Earlier this month, the company announced that its CEO and CFO would be stepping down effective immediately. These moves followed an independent board investigation which found that Lordstown did indeed inflate its pre-order numbers. These pre-orders didn’t represent firm commitments, and as such, investors may be buying into a company with a lot less demand for its prospective vehicles than was previously thought. That’s not good at all.
From a corporate governance perspective, these headlines aren’t good for this stock. Investors are left wondering whether they can trust the data this company is putting out. As with any early-stage company in any industry, investors need to feel as though they can trust the management team to follow through on what they say they’re going to do. In this case, RIDE stock appears to be a complete gamble, based on what appears to be manipulation with initial preorder data.
“Going Concern” Statement Not Bullish for Investors
Aside from the whole pre-order debacle and management reshuffle, RIDE stock appears to have a tough road ahead. From a financial perspective, it appears this company’s current situation is growing increasingly dire. The company’s management team recently issued a “going concern” statement in a quarterly filing which came without a press release. Indeed, this announcement in early June put a halt to a recovery in RIDE stock which had seen shares double since mid-May lows.
Any company that issues such a warning is telegraphing its next moves. This company will need to raise capital at some point in the near future. While some investors may view another potential meme stock rally as a way out for Lordstown, it remains to be seen if retail investors will continue to show up for this highly-shorted stock. Based on the company’s most recent financial results, Lordstown is burning through roughly $125 million in cash on a quarterly basis. With roughly $587 million cash available as of March 31, this implies roughly one year’s worth of capital remaining for the company to burn through.
However, given the company’s statement that it believes “our current level of cash and cash equivalents are not sufficient to fund commercial scale production and the launch of sale of such vehicles,” some sort of dilutive equity raise is the most likely outcome for this stock right now.
What Analysts Are Saying About RIDE Stock
According to TipRanks’ analyst rating consensus, RIDE stock comes in as a Moderate Sell. Out of 8 analyst ratings, there are 1 Buy recommendation, 3 Hold recommendations, and 4 Sell recommendations.
As for price targets, the average Lordstown price target is $9.00. Analyst price targets range from a low of $1.00 per share to a high of $20.00 per share.
Bottom Line
There is simply too much hair on this stock for most serious investors to consider Lordstown right now. Given the competition the company will see in the EV truck market from competitors such as Ford (F), this company’s outlook looks bleaker than ever before.
Yes, this is a stock that could surge on another short-squeeze type ride. However, it’s a high-risk option in the market today, when there are much better quality growth stocks available at cheaper valuations.
Accordingly, it’s hard to see a bullish thesis for why any investor would want to consider RIDE stock today.
Disclosure: Chris MacDonald held no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
