Don’t blame it on Canoo (NASDAQ:GOEV) stock. The startup electric vehicle (EV) company went public as part of a SPAC merger in December 2020.
At that time, any company associated with the sector was caught up in an EV bubble, and GOEV stock was no exception.
Immediately after going public, GOEV stock more than doubled from its SPAC price of $10, but today Canoo looks like it’s running out of juice.
The company’s stock is trading below the psychologically important $10 level and there’s a lot of noise surrounding the stock, most of it negative.
Those who are familiar with my articles know that I value things like earnings and revenue. However, I’m not unreasonable. There are many companies in the EV sector that are pre-revenue. Not every one of them will succeed, but they won’t all fail either.
With that said, Canoo is getting a lot of attention from the r/WallStreetBets crowd and short interest is high. That makes it a buy for only the most speculative investors. But it also means that you might not want to sell either.
Until we know more, I’d caution against overreaction.
A Practical Pivot Lacks Sizzle
I liked the story of Canoo better when the company was creating a revolutionary multi-purpose electric vehicle (MPEV). It may not have been attractive, but neither was the Volkswagen van of the 1960s.
However, just like the VW van got the job done then, I suspect the Canoo MPEV would have addressed the millennial and Gen-Z audience of today.
What was particularly interesting was the company’s plan to use a subscription model. Consumers could essentially rent the car for a period of time (perhaps a weekend trip with friends) and then return it.
For a generation that is opposed to commitment, it was a model that made sense.
But in the company’s recent earnings report, it indicated that it was pivoting towards a delivery van for the commercial market. It also announced that, for now, the subscription model would stay on the shelf.
The company may still launch their “fun” MPEV. But someday is not the same as saying it would hit the market in 2023 (which is when the company says they will start production).
The commercial delivery vehicle that the company will offer is a practical pivot right into the teeth of where several EV companies are going.
It seems like it will be difficult for Canoo to carve out a meaningful niche.
Can They Deliver Flawless Execution?
In a 2020 report, Deloitte cited a survey from IHS Markit that predicted by 2026 the United States will offer 130 EV models from up to 43 brands.
On the one hand, nearly four dozen brands would suggest there will be room for Canoo. On the other hand, that leaves many companies fighting for a sliver of market share.
To succeed in that environment will require flawless execution. And that’s not something typically associated with startup companies.
Still with GOEV stock trading under $10 a share, there’s little risk to owning the stock unless you believe the company will go bankrupt. With approximately $640 million in cash on hand (as of its last earnings report) that doesn’t appear to be much of a risk.
What seems more likely is that Canoo will have to raise more capital at some point to ensure they make it to the revenue generating stage.
That was the opinion of our own Mark Hake who also made the point that if Canoo must undertake a capital offering, it’s best they do it quickly.
The Bottom Line on GOEV Stock
Analysts couldn’t be more divided on GOEV stock.
In fact if you remember the story of the three little bears, you’ll have a fairly good glimpse into how analysts feel about Canoo. There are three analysts issuing ratings on the company. One gives it a Buy, one a Hold, and one a Sell.
What’s an investor to do? At this point it might be best to pick the one in the middle. I wouldn’t say it’s time to go big on GOEV stock, but neither do I think it’s time to go home.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.