Mullen Stock: An Appealing Bargain or Just Hype?

Shares of California-headquartered electric vehicle start-up Mullen Automotive (NASDAQ:MULN) have lost 95% of their value in less than three months.

If that sounds bad, though, consider that it’s not me saying this about Mullen. It’s Mullen management itself who made the admission, in a press release issued Wednesday: “Since March 31, 2023, the Company’s stock has declined over 95% from $3.25 per share to $0.16 per share on June 20, 2023.”

But here’s the thing: Mullen isn’t fessing up here to having a rotten stock. To the contrary, Mullen is highlighting the dramatic decline in its share price as a mistake than investors are making — and Mullen management is arguing that its stock is actually worth more than investors are giving it credit for.

A lot more.

As Mullen points out in its press release, the company currently boasts a cash war chest brimming with $135 million, versus only $7.3 million in debt. Mullen goes on to describe its cash position as amounting to $0.38 per share — even though its stock costs barely half that, less than $0.18 per share — and comprising a big chunk of the company’s $2.08 per share book value (again, against a share price of less than $0.18).

In management’s view, Mullen has more than enough money on hand to keep it solvent for the next 12 months, and pay for both the company’s manufacturing expansion, and the introduction of several new electric vehicle products to the market this year. Thus, Mullen feels confident it can now declare a “moratorium” on “new financings” (i.e. stock sales) through the end of this year.

And you know what? Mullen may have a point.

At first glance, I have to say that Mullen’s numbers look rather grim. Although the company has $135 million in cash, its cash burn rate over the past 12 months was far more than $135 million — nearly $207 million in fact. At first glance, this seems to suggest that Mullen is burning cash so fast that its $135 million in cash today might be burned up in far less than 12 months.

And yet, it also might not. If you read Mullen’s financial statements closely, you see, it turns out that the bulk of Mullen’s cash burn over the past 12 months actually took place in just one single quarter — fiscal Q1 2023, when the company spent $92.9 million all in one shot, buying the assets of electric vehicle company Electric Last Mile Solutions (ELMS) in an all-cash purchase. Back out the cash spent on that acquisition, though, and Mullen’s cash burn rate over the last 12 months would have been only about $114 million.

And if that’s all Mullen spends over the next 12 months, then yes, $135 million in cash reserves should be plenty to tide Mullen over through the next year.

Now, there are caveats and provisos to this statement. Mullen does have a propensity for buying up some EV companies, and entering into partnerships with others, buying both Bollinger Motors and the ELMS assets last year for example, then partnering with Qiantu Motors in March, and creating a “Mullen Advanced Energy Operations, LLC” joint venture with two other companies in April. Given the company’s history of frenetic M&A activities, there’s no guarantee Mullen won’t find a way to burn through its $135 million in cash before the year is up.

Still, it’s also possible that Mullen has learned a lesson from its 95% decline in stock price — that lesson being that investors would like it to focus less on buying up electric vehicle companies, and more on selling electric vehicles, period.

If Mullen can accomplish this, there’s still a chance its stock may survive.

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.

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