Electric cars have seen demand soaring over the past few years, with more people dumping IC engine vehicles. This has led many companies to try to capitalize on the rising demand for electric vehicles.
Lordstown Motors Corp. (RIDE) develops, manufactures, and sells light-duty work vehicles. It is a light-duty original equipment manufacturer (OEM) focused solely on EVs for commercial fleet customers. Its flagship vehicle is Endurance, an electric full-size pickup truck for fleet customers.
The company loss per share came in higher than analyst expectations in the third quarter. RIDE’s stock has declined 59.4% in price year-to-date and 72.3% over the past year to close the last trading session at $1.40. Moreover, the stock is trading 72.1% below its 52-week high of $5.01, which it hit on November 23, 2021.
On May 11, 2022, RIDE concluded the sale of its Lordstown, Ohio, factory to Foxconn for $230 million, which included a direct investment of $50 million agreed upon to aid RIDE in manufacturing its Endurance pickup truck. The factory sale was necessary as the company had nearly run out of cash. Without Foxconn’s intervention, RIDE’s production plans for its electric pickup truck would have been hampered.
On November 7, 2022, RIDE announced that they agreed with Foxconn to make additional equity investments in RIDE. Foxconn will hold an 18.3% stake in RIDE. The total investment will be up to $170 million. The deal will make Foxconn its biggest shareholder.
RIDE’s agreement with the Taiwan-based company will help it stay afloat and start production and delivery of its pickup truck. Commercial production of its electric pickup truck, the Endurance BEV, has begun in the third quarter, albeit at a much slower pace. The company is aiming for deliveries in the fourth quarter. The company is facing supply chain issues and high raw material prices.
Wall Street analysts expect the stock to hit $1 in the upcoming months, indicating a potential downside of 28.6%.
Here's what could influence RIDE’s performance in the upcoming months:
Disappointing Financials
RIDE’s total operating expenses increased 56% year-over-year to $154.85 million for the third quarter ended September 30, 2022. The company’s net loss widened 61.2% year-over-year to $154.43 million. Its total current assets declined 13.4% to $252.17 million, compared to $291.14 million for the fiscal year ended December 31, 2021.
Mixed Analyst Estimates
RIDE’s EPS for fiscal 2022 and 2023 is expected to remain negative. Its revenue for fiscal 2023 is expected to increase significantly to $44.22 million.
Stretched Valuation
In terms of forward EV/S, RIDE’s 82.82x is significantly higher than the 1.08x industry average. Likewise, its 180.01x forward P/S is considerably higher than the 0.86x industry average.
Low Profitability
RIDE’s trailing-12-month ROCE is negative, compared to the 13.40% industry average. Likewise, its trailing-12-month ROTC is negative compared to the 6.65% industry average. Also, its negative trailing-12-month ROA compares to the 4.69% industry average.
POWR Ratings Reflect Bleak Prospects
RIDE has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. RIDE has a D grade for Value, in sync with its stretched valuation.
It has an F grade for Quality, consistent with its weak profitability. Also, its 1.18 beta justifies its D grade for Stability.
RIDE is ranked #47 out of 61 stocks in the D-rated Auto & Vehicle Manufacturers industry. Click here to access RIDE’s ratings for Growth, Momentum, and Sentiment.
Bottom Line
RIDE is trading below its 50-day and 200-day moving averages of $1.77 and $2.19, respectively, indicating a downtrend. Although RIDE has started commercial production of its electric pickup truck, with an initial production target of 500 units, it still needs to complete full homologation and the required certification.
The economy could be in a recession by the time the company starts its deliveries. The economic downturn could affect automakers facing rising raw materials costs and supply chain issues.
RIDE is still far from turning profitable. Given its disappointing financials, stretched valuation, and low profitability, it could be wise to avoid the stock now.
How Does Lordstown Motors Corp. (RIDE) Stack up Against Its Peers?
RIDE has an overall POWR Rating of F, equating to a Strong Sell rating. Therefore, one might want to consider investing in other Auto & Vehicle Manufacturers stocks with an A (Strong Buy) or B (Buy) rating, such as Subaru Corporation (FUJHY), Isuzu Motors Limited (ISUZY), and Stellantis N.V. (STLA).
RIDE shares rose $0.03 (+2.14%) in premarket trading Tuesday. Year-to-date, RIDE has declined -58.84%, versus a -15.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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