Despite Encouraging News, Lordstown’s Shares Still Look Poised to Plunge
Although there has been some encouraging news about Lordstown Motors (NASDAQ:RIDE) recently, there have not yet been any concrete signs that the automaker can avoid bankruptcy, while RIDE stock remains vastly overvalued. Consequently, I continue to urge investors to sell the shares.
Moreover, I believe that risk-tolerant investors looking for a hedge against possible corrections by the stock market and meme-stock declines should consider shorting the stock.
Encouraging Signs
I think that the recent resignation of Steve Burns as Lordstown’s CEO was positive news. After an investigation ordered by the company’s board found that, during Burns’ tenure, Lordstown had made “certain..inaccurate” statements regarding pre-orders and Lordstown disclosed that it might not stay in business for more than a year, it was clear that the CEO had to go. By allegedly misrepresenting key information and failing to keep the company on course to stay solvent, Burns showed, in my opinion, that he was not a good fit for the job.
To be honest, I was always less-than-thrilled with Burns’ leadership record. As the cfounder and longtime CEO of Workhorse (NASDAQ:WKHS), he was never able to get that company solidly on the road to success. Meanwhile, neither Workhorse nor Lordstown has been able to obtain and maintain impressive, revenue-generating deals with large companies. And the third-party reviews of both companies’ products have, at best, been mixed.
Another piece of good news for RIDE stock was statements by Morgan Stanley analyst Adam Jonas about the company’s flagship Endurance pickup truck. According to Seeking Alpha, after taking a prototype the EV for a test drive recently, Jonas was very positive about it, saying that it handled very well.
Still, the latter, brief report doesn’t eliminate my concerns about the vehicle’s wheels, the failure by an Endurance prototype to complete a race in April, and the fact that an Endurance prototype caught fire in March.
No Concrete Signs of Hope for RIDE Stock
On June 23, at an event for media and investors, Lordstown sought to reassure its guests that it has “real employees at a real plant.”
While that’s much better than having no real employees and not having access to a plant, those assets alone will not be enough to keep the company’s doors open and enable RIDE stock to stay above $0.
To accomplish those goals, the automaker needs a sizeable number of real orders and real revenue.
And on those fronts, the news has been dismal. In fact, on June 17, the automaker admitted in an SEC filing that it had no “binding purchase orders.”
Also not helping Lordstown’s outlook are the distraction of dealing with an ongoing SEC investigation, the need for its new executives to hit the ground running, and the intense competition it is facing.
The Bottom Line
In an effort to stay afloat, Lordstown is seeking strategic alternatives, including a loan from the Department of Energy. But I don’t think that any private entity will be eager to ride to the rescue of a scandal-plagued company that’s facing intense competition and an SEC probe. As for the Department of Energy, after Republicans around a decade ago made much of the bankruptcy of a solar energy company that received a $535 million loan guarantee, from the department the White House is likely to be wary of signing off on a huge loan to Lordstown with the pivotal 2022 Congressional elections rapidly approaching.
Meanwhile, as I’ve noted in past columns, the power of retail, “meme-stock” investors appears to be weakening, and my sense is that RIDE stock has benefited a great deal from the support of those investors. Famed investor Michael Burry, who called the 2007 housing crash, also expects meme stocks to tumble sooner or later.
Although Lordstown’s shares could get temporary boosts from positive news about government support from EVs, I think such news is more than baked into the shares, and such gains are likely to be fleeting.
Given all of Lordstown’s problems and its current market capitalization of $1.86 billion, it’s hard to envision a scenario in which its shares don’t tumble. And I believe the company will likely go bankrupt.
Given these points, I see RIDE stock as a good stock to short for risk-tolerant investors looking for hedges against a market correction and those looking to profit from the looming decline of meme stocks.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.
