Sometimes a stock takes a beating and paraphrasing Warren Buffet, while all others are running to the exit gates, maximum opportunity is presented to those willing to take a chance on picking up shares at a discounted price. Of course, this scenario only applies if the stock has promising characteristics being overlooked by the market. Sometimes, though, it’s just better to run away with the pack, as there might be a sound reason why the company’s prospects are dim.
Which brings us to Lordstown Motors (RIDE). On Tuesday, the EV truck start-up said it is in a precarious cash position which will hinder it from initiating production of its electric pickup – the Endurance. Management even disclosed it might not be able to keep the doors open unless it procures a serious cash injection. Investors took the update as a sell sign, and the stock set off on a 29% slide until the session’s close, ending 16% into the red.
Whether Lordstown manages to source the funding needed to stay afloat, its value proposition is a flimsy one at best, according to RBC’s Joseph Spak.
“Lordstown is going after a profitable segment in pickups and one that could be more likely to electrify quicker given fleets’ focus on cost of ownership,” the analyst said. “However, ultimately, the commercial/government full-size pickup fleet market is limited, much more so than the opportunity set other EV start-ups are going after and we believe RIDE has overstated its addressable market.”
The bear case gets even more pronounced if you factor in the stiff competition the company will face once legacy players enter the market. And this will happen sooner than later; Ford and GM have already announced their respective offerings, the F-150 Lightning and the electric Silverado.
Spak also thinks the company has taken on additional risk with its technology of choice. Lordstown vehicles’ “defining feature” is four hub motors. But these have “never been mass/serially produced and historically have had a number of engineering challenges including dealing with unsprung mass, integration and debris.”
Of course, talk of whether the tech works or not is redundant if the company will be unable to execute its vison.
As such, Spak initiated coverage of RIDE with an Underperform (i.e. Sell) rating and $5 price target. Even after Tuesday’s bloodbath, investors are looking at an extra 55% drop from current levels. (To watch Spak’s track record, click here)
The rest of the Street’s outlook is not quite as grim, yet still far from positive. Going by the $9.57 average price target, shares are expected to shed 21% of their present value. The stock’s Hold consensus rating is based on 4 Holds, 3 Sells, and a solitary Buy. (See RIDE stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.