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On the surface, Vietnam’s electric vehicle manufacturer VinFast (VFS) appears to have the potential for disruption. By offering a clear alternative to Tesla (TSLA) across various price points, the upstart EV specialist could appeal to jaded consumers. At the same time, the entire industry has been struggling and that’s not something that anyone should ignore regarding VFS stock.
Still, the latest results can’t be denied. On Monday, VFS stock saw tremendous interest, ultimately closing at $6.32 or up 29.51% against the prior session. Over the trailing month, shares have gained just over 160%. Unsurprisingly, several call options witnessed impressive returns, fueling speculation for more upside swings.
On the other hand, VFS stock is only up 18% in the trailing six months. Over the past 52 weeks, it lost almost 83% of equity value. How then should prospective investors handle this current backdrop? Below are pros and cons to consider.
Unusual Options Screener Lights Up for VFS Stock
First and foremost, the enthusiasm for VFS stock manifested itself in the derivatives market, setting the stage for enticing speculation. VinFast ranked among the top highlights in Barchart’s screener for unusual stock options volume. This data interface enables retail investors to better understand what the smart money may be doing with its funds.
Following the closing bell of the May 20 session, total volume reached 48,751 contracts against an open interest reading of 117,391 contracts. Monday’s volume represented a 454.05% jump from the trailing-month average metric. Breaking down the details, call volume reached 34,007 contracts versus put volume of 14,744.
On paper, this pairing yielded a put/call volume ratio of 0.43. That’s bullish as it suggests more traders are engaging calls than puts. To be sure, Barchart’s options flow screener – which focuses exclusively on big block transactions likely placed by institutional investors – reveals far more trades with bullish sentiment than bearish.
Interestingly, though, for the top three transactions with either bullish or bearish sentiment, pessimists slightly gained the upper hand in terms of total premiums paid, $48,000 to $46,500.
Many of the bearish transactions involve sold calls. With many options running hot premiums tied to implied volatility against historical volatility, an incentive exists to sell derivatives rather than to buy them.
Pros of Buying VinFast Stock
One of the biggest catalysts for acquiring VFS stock comes down to the persistent meme trade. As the big move in AMC Entertainment (AMC) and other popular ideas have demonstrated, meme traders are committed to bidding up embattled enterprises. VinFast may be going along for the ride.
Another related factor to consider is the company’s short interest. Right now, this metric as a percentage of the float stands at 14.76%. That’s elevated and it may be creating a positive feedback loop. For short traders to cover their bearish bets, they must buy to close. Naturally, this action creates upward pressure for the target security.
More panicking can create more pressure, which is good for bullish speculators of VFS stock.
Cons of the EV Maker
While VinFast is enjoying tremendous growth, it’s also suffering from expanding losses. At the moment, its retained loss sits at around $7.25 billion. Of course, this figure can improve in the future as sales expand. Nevertheless, this expansion is hardly guaranteed due to the intense competition in the EV ecosystem.
Another problem to consider (among many) is that the automotive business is capital intensive. Consistently, one of its headwinds has been cash flow. As Barchart’s content partner The Motley Fool mentioned, VinFast is losing money rapidly.
Under this backdrop, management may need to engage in dilutive measures. That wouldn’t be helpful to VFS stock in the long run.
How to Approach VFS
With all these factors in mind, approaching VFS stock comes down to your personal objectives. As a long-term investment, VinFast may be problematic. Its cash burn in a competitive and capital-intensive industry poses serious concerns.
On the flipside, it might not be a bad idea to throw some pocket change into short-term call options. Specifically, the Sep 20 ‘24 7.00 Call – which carried a premium of $80 to control 100 shares on Monday – looks appealing because based on strictly intrinsic value, VFS stock would need to trade above $7.80 for the call to be profitable.
However, the next big resistance barrier should be around $8. For speculators, then, VFS stock could be interesting. I just wouldn’t hold onto it indefinitely without clear evidence of a robust turnaround.
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.
