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Easily one of the top-performing securities on Monday was upstart electric vehicle manufacturer Canoo (GOEV). Skyrocketing over 49%, GOEV stock benefited from a key governmental approval. With that, retail investors believe a turnaround is in order. Maybe Canoo will recover, maybe it won’t. As traders, it’s best to consider the data and engage realistic probabilities.
Canoo splashed green ink on the charts following management’s announcement that the U.S. Department of Commerce approved the company’s Oklahoma City facility as a Foreign Trade Zone (FTZ). Per Electrek, this designation will help accelerate Canoo’s “Made in America” EV strategy. As well, the development could improve unit profitability, thus providing a clearer roadmap to breakeven.
Currently, the plant employs about 100 workers. However, at full capacity, it could support up to 1,100. Therefore, the news also carries regional economic importance.
Further, Electrek points out that with the FTZ designation, “Canoo eliminates all customs duties on vehicles sold overseas and defers of customs duties on imported parts for EVs sold in the US.” Notably, the EV maker sources over 90% of its parts in the U.S. and free trade partners, with about 70% from North America.
Obviously, it’s a shot in the arm that GOEV stock desperately needed. Even with Monday’s mercurial performance, shares are still down more than 45% since the beginning of the year. And that unfortunately raises critical questions about the firm’s viability.
Yes, there is an argument to be made that GOEV stock is undervalued. Per Barchart, shares trade at only 0.22X book value. Simplistically, that means that – all other things being equal – Canoo could sell all its assets and the total funds received would be worth 4.5 times the value of the business.
But is that a bargain or an indictment? Frankly, I have no idea. But we can let the market tell us and attempt to profit along the way. Here’s how.
Double Duty for GOEV Stock
Not surprisingly, Barchart’s unusual options volume indicator identified GOEV stock as a high-profile transaction. Total volume reached 50,929 contracts against an open interest reading of 314,225. The difference between Monday’s volume and the trailing one-month average metric came out to 523.44%.
Breaking down the details, call volume reached 32,409 contracts against put volume of 18,520 contracts. This pairing yielded a put/call ratio of 0.57, favoring the bulls. Generally, because the market features an upward bias, the average put/call ratio tends to be around 0.7. So, it’s possible that there could be some skepticism baked into Canoo’s dramatic rise.
Whatever the case, GOEV stock closed the March 18 session at $2.90. Further, the afterhours session took the price to $2.96, a 2% lift. That’s significant because Canoo shares now stand near a key pivot point of $2.99.
That price target comes from Barchart’s nifty feature, the Trader’s Cheat Sheet. Notably, the $2.99 price is very close to the $3 level, which is important from a psychological perspective. Given the intense enthusiasm in GOEV stock, it’s almost a certainty (though nothing is guaranteed) that the bulls will be attempting to push for this milestone.
Understanding this psychology, you may consider buying the slightly out-of-money (OTM) 17 May 2024 $3 call. Yes, the bid-ask spread as represented by the midpoint price is wide at 18.45%. However, many of the other options are worse due to lack of volume (participation).
Should GOEV stock enjoy continued bullish momentum, Barchart identifies a possible road to $3.57. However, on the way there, you may consider exiting the trade and then reversing roles, buying put options instead, such as the 17 May 2024 $2.50 put. The reason? There are stacks of resistance layers beyond $3.57:
- Pivot Point 1st Resistance Point at $3.79.
- Price 2 Standard Deviations Resistance at $3.85.
- Price 3 Standard Deviations Resistance at $4.06.
And the list goes on. I’m not suggesting that GOEV stock can’t blow through these resistance layers. However, as shares swing higher, more and more investors will get skeptical about the company’s fundamentals. From a probability perspective, then, going for the puts once GOEV starts rising toward $3.57 may be the smarter move.
Credibility Concerns
While it’s easy to be enamored with Canoo thanks to its dramatic rise, it’s also important to consider the bigger picture. As Monday’s volatility in Hertz Global (HTZ) demonstrated – a byproduct of its disastrous EV wager – electric mobility faces a credibility crisis.
For Canoo, it really comes down to meeting expectations amid other companies scaling back their EV ambitions. By the end of fiscal 2024, analysts project Canoo to post a loss per share of $8.87 atop revenue of $152.52 million. That’s quite a goal based on 2023 projections for a loss of $13.82 per share on revenue of $1.24 million.
Again, I’m not saying it can’t happen. But as traders, you got to play the data, not hopes and dreams. At this moment, traders should be prepared to both buy and sell GOEV stock, depending on what the market provides.
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.
