Lion Electric recently announced that it will raise up to US$125 million using an at-the-market equity program. Essentially, the company will sell shares a little bit at a time on the open market during market hours at its discretion.
The company plans to use the proceeds to fund its growth plan, which includes projects that will increase its capacity. In addition, the financing will also be used to strengthen the company’s financial position.
However, it’s important for investors to remember that equity financings are dilutive to shareholders. An investor’s stake in a company shrinks every time new shares are issued. Indeed, with a current market cap of US$862 million, the US$125 million is equivalent to roughly 14.5% of the market cap.
The sentiment among TipRanks investors is currently very negative. Out of the 534,904 portfolios tracked by TipRanks, only 0.3% hold Lion Electric. Furthermore, in the last 30 days, 1.3% of those holding the stock decreased their positions.
Likewise, 0.6% of TipRanks portfolios decreased their holdings in Lion Electric in the past seven days. The stock’s sentiment is below the sector average, as demonstrated in the following image:
Lion Electric has a Moderate Buy consensus rating based on five Buys and two Holds assigned in the past three months. The average Lion Electric price target of C$12.37 implies 114.1% upside potential.
Although the electric vehicle industry is exciting, investors need to remember that most of these companies are speculative bets that are burning cash in a slowing economy. Therefore, further dilution will likely be required to help fuel the company’s growth.