For electric vehicle maker Lordstown Motors (NASDAQ:RIDE), most news has not been good lately. However, the company shot up 14.6% in pre-market trading on Tuesday. Those gains expanded in early trading, at one point reaching double that figure at over 29%. However, the stock is now slightly down on the day. While Lordstown also released Q3-2022 results today, the main reason for the initial surge is likely connected to a big new investor. Foxconn announced that it would spend as much as $170 million on Lordstown shares. This would make Foxconn Lordstown’s largest shareholder, reports noted, owning 18% of the company outright.
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Foxconn’s new ownership stake in Lordstown does represent some exciting potential opportunities. Further, considering the current share price on Lordstown right now, it’s not hard to be at least a little bullish.
The best has to be yet to come for Lordstown because it likely doesn’t have much farther to fall. That’s why I’m pivoting to modestly bullish, despite some signs that suggest further potential problems ahead.
Is Lordstown Motors Stock a Good Buy Right Now?
Turning to Wall Street, Lordstown Motors has a Moderate Sell consensus rating. That’s based on one Hold and one Sell assigned in the past three months. The average Lordstown Motors price target of $1.50 implies 18% downside potential. Analyst price targets range from a low of $2 per share to a high of $1 per share.
Meanwhile, investor sentiment metrics are mixed. Currently, Lordstown Motors has a 6 out of 10 Smart Score on TipRanks. That’s just a bit above the scale’s midpoint, suggesting a very small chance that the stock will ultimately outperform the broader market.
Other investor sentiment metrics won’t prove much help. Hedge fund involvement, for example, is considered “neutral” right now. There’s a reason that’s important, however.
It’s neutral because no hedge fund has had a position in Lordstown Motors since late 2020. For two years now, not a single hedge fund on record has held Lordstown stock, and that might make investors think twice.
However, the picture is turning positive for insider trading figures. Insiders bought $20,600 worth of stock in the last three months. In fact, no insider has sold a share of Lordstown since February.
However, the company doesn’t generate revenue, and it recently posted an operating loss of $154.8 million. That includes a $74.9 million “non-cash asset impairment charge” as well as $30 million for “historical litigation,” and $16.2 million for a charge to reflect current inventory value.
That may be about to change, however, as the company reaffirmed it would start delivery on its Endurance truck in the fourth quarter. Crash testing has concluded successfully, and the company is awaiting approval from the EPA and CARB.
The Start of Something Big, Maybe
Granted, even the good news about Lordstown Motors is still kind of mixed. After all, we’re talking about a company that hasn’t produced revenue. Also, the company is still technically overvalued, according to analyst projections. So, why is Foxconn buying huge quantities of a possibly overvalued stock? One suggestion—perhaps the most likely—is that Foxconn wants an easy way to slip into the electric vehicle market and compete with Tesla (NASDAQ:TSLA). Tesla, after all, is releasing the Cybertruck, and Foxconn may now be able to compete against that with Lordstown’s Endurance.
Naturally, there’s a lot more competition than that. Ford (NYSE:F) offers the Lightning F-150, and GM (NYSE:GM) boasts the Silverado and the Sierra EV Denali. Both of these enjoy the critical advantage of name recognition in a field where brand loyalty can be a lifelong prospect. The F-150 was even the subject of some good press in a road trip test.
Thus, now we fall to speculation. If Foxconn bought in big on Lordstown as a way to get access to the electric vehicle market for comparatively cheap, that makes some sense. Further, this isn’t the first time that Foxconn has invested in Lordstown; Foxconn previously bought Lordstown’s Ohio plant for light pickup truck production.
Best of all, for speculators, the company has already lost most of its value. In February 2021, the company was worth around $30 per share. Now, it’s down around $1.80. There’s much less room to fall unless it closes outright. With Foxconn already backstopping the company, a complete loss seems unlikely. It’s possible, of course, but likely? Not very.
Conclusion: Like a Powerball Ticket with Assets
Investing in Lordstown is going to be a gamble, but it’s also an educated gamble, thanks to the sheer amount of cash that Foxconn has thrown in. It’s going to be a tall order for Lordstown to compete.
After all, it has virtually no name recognition outside of a few niche circles. It’s taking on some of the biggest names in the field, like Ford, GM, and Tesla, and it’s doing so with essentially one big investor.
Still, I’m bullish. If Lordstown manages to pull off a win, it could be a pretty big win and at a relatively low price. If it recovers to its highs of two years ago, it could be a full-on 15-bagger.
