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With the burgeoning electric vehicle sector being a lucrative but rather predictable enterprise, Lordstown Motors (RIDE) offered a distinct pathway to the electrification of mobility. Rather than focusing on the consumer market, Lordstown developed the Endurance – a full-size, all-electric pickup truck that took aim at commercial fleet operators. Unfortunately, RIDE stock endured several reality checks, taking it from a $29 security to one that’s trading in literal penny-stock territory.
On Monday, RIDE posted a worrying low, with the share price hitting 25 cents before closing the session at 40 cents. Despite the big rebound during the day, RIDE stock still gave up more than 23% of equity value. Even with Tuesday’s recovery effort, on a year-to-date basis, RIDE is still down nearly 59%.
While it might make for intriguing short-term speculation, for everyone else, it’s best to stay away.
RIDE Stock Suffered a Devastating Blow
Starting off the week that began with the failure of First Republic Bank, Lordstown had its own devastating news to share, warning stakeholders that it’s in danger of becoming bankrupt, according to the AP. That’s because key investor Foxconn Technology Group got jittery about its $170 million investment in the commercial EV startup.
Lordstown stated in a regulatory filing on Monday that it received notice from Foxconn on April 21 regarding a breach of their investment agreement. The contentious issue centers on the delisting warning that Lordstown received from the Nasdaq exchange two days earlier. Therefore, Foxconn warned the EV maker that it may unwind the agreement if Lordstown didn’t resolve its listing issues.
“As a result of these uncertainties, there is substantial doubt regarding our ability to continue as a going concern,” the once-promising automotive firm wrote. Per the AP, other EV stocks also fell on the announcement.
Interestingly, though, not everyone appeared pessimistic about the implosion of RIDE stock. Following the close of the May 1 session, RIDE stock made a surprising entry on Barchart’s screener for unusual stock options volume. Specifically, total volume came out to 10,496 contracts against an open interest reading of 73,872. The delta between the Monday session volume and the one-month average volume came out to 615.47%.
Most conspicuously, call volume hit 8,380 contracts versus put volume of 2,116. This pairing yielded a put/call volume ratio of 0.25, on paper favoring the bulls. Though a daring and enticing trade, risk-averse investors should probably skip this one out.
Lordstown Faces Problems Even Without the Foxconn Headwind
Underscoring the volatility in RIDE stock is that the issuing enterprise has much more to lose in this latest fiasco than the opposite party. It’s possible that Lordstown can sue Foxconn for reneging on the aforementioned financing agreement. However, if Foxconn plays hardball, Lordstown doesn’t have much time or money on its hands. As of Tuesday’s close, Lordstown’s market capitalization was only $112.23 million.
However, even without the Foxconn headwind, RIDE stock would likely suffer from severe pressures. Let’s face reality – since making its public market debut, Lordstown’s valuation evaporated to the tune of more than 95%. That didn’t just happen because of Foxconn.
No, as the AP pointed out, management issued prior warnings about its viability. Also, the news agency brought up an excellent point: Lordstown in 2020 merged with DiamondPeak, a special purpose acquisition company (SPAC). The AP mentioned that SPACs “are considered a quick route to becoming publicly traded and listing shares on an exchange.”
However, these blank-check firms present more risk for investors because the disclosure process before a company goes public is not as robust. For both RIDE stock and the broader SPAC ecosystem, the post-honeymoon phase has been brutal.
If that wasn’t enough of a concern, EV stocks face the dark clouds of a sector-wide price war. With Tesla (TSLA) aggressively cutting prices across its lineup since January of this year, other companies may be forced to respond to stay relevant. That could be the final nail in the coffin for RIDE stock.
Only Appropriate for Extreme Speculation
To be completely fair, it’s inappropriate to say that RIDE stock offers no choice for speculative upside potential. In particular, Lordstown’s embattled profile could bring out traders looking to spark a short squeeze.
Here, data from Fintel reveals that RIDE’s short interest as a percentage of its float is a lofty 21.84%. Also, its short interest ratio is 4.15 days to cover. As well, its off-exchange short volume ratio pings at 57.46%.
Nevertheless, you can only cheat the fundamentals for so long. With a key investor signaling the possibility of walking away, plus the EV sector engaging in a civil war, there’s not much room left for a beleaguered investment like RIDE stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
