Fisker Stock Would Look a Whole Lot Better With Less Short Interest

When I last wrote about Fisker (NYSE:FSR) stock in April, I said I liked the stock better when it was trading near $13 a share.

It seems at least some investors agreed that they preferred an even lower entry point. FSR  stock dropped below the $10 mark in late May.  

But as the saying goes: that was then. FSR stock spiked in June and climbed above $20 a share. But that now seems like a point of resistance as the stock has fallen back to around $16 a share.  

At this moment, speculators in Fisker stock seem to have gone away for the summer. The stock has been trading at about 20% of its normal volume.

This makes now a good time to reflect more on a company that has a chance to be disruptive, or to be disrupted.  

A Closer Look at FSR Stock

Fisker CEO Henrik Fisker continues to say the company is on track to begin production in November 2022. While that’s quite some time away, it’s reasonably consistent with its competitors. The key at this point is to ensure it doesn’t get delayed any further.  

Fisker’s partnership with Magna International is one reason that many investors are bullish about Fisker’s chances of starting production on schedule.

When I first started analyzing Fisker, I had a concern regarding the company’s plans to outsource manufacturing to Magna International.

This long-term agreement should be a net positive for Fisker. I believe it does make it more likely than not that Fisker will enter production on time.  

My concern then (as now) now is that with Magna not only being a partner, but having a small ownership stake, they could insist on several design tweaks to facilitate the manufacturing.

While that still is a net positive, it could mean that some of the innovative features that Fisker is proposing will not materialize.  

Fisker has already walked back its plans to use a solid-state battery. While this has nothing to do with having Magna as a partner, it serves as a reminder that well-intentioned plans change.

I’ve seen it happen in other manufacturing-intensive industries, and it certainly is true of the automotive sector.  

Short Interest Remains High 

If I want to oversimplify the current state of Fisker, I can point to the short interest on FSR stock. Yes it’s down roughly 18% in the last month. However, that still leaves a short interest ratio of around 25%.  

Let’s be clear on what this means. Short interest defines the number of shares that have been sold short but have not yet been covered or closed out. It is an indicator of market sentiment and can be expressed as a number or, more tellingly, as a percentage.

When short interest is high it indicates that investors are pessimistic about the stock. However, when short interest runs high, it also sets up the potential for a short squeeze.  

For those who are wondering why I’m putting in this remedial investing information, I’ll tell you. Because I’m not confident that the jump in FSR stock in June was due to actual investor sentiment or a well-timed bet.  

Can I say for sure that this was the primary reason that FSR stock jumped in June? Not with certainty, but it seems likely. That makes it better to wait for the stock to drop before it comes down.  

Wait for Less Disruption to Buy FSR Stock 

I’m sure that Fisker bulls delight in reading headlines that remind them that FSR stock could grow more than 130%, and if everything goes right it could. That’s just math. But few things rarely go exactly as planned.

That risk is even greater when you’re looking at automobile manufacturing, and there’s an even greater risk premium on electric vehicles.  

With plans to build the world’s most sustainable electric vehicle, Fisker has a marketing story that should appeal to climate-conscious investors. With nearly 20,000 non-binding pre-orders lined up, there are customers who seem to agree. 

However, production is still 16 months away. And once Fisker does start producing vehicles, it’s probably billions of dollars of yet to be diluted shares away from turning a  profit.  

Does that mean you shouldn’t invest in FSR stock? That’s for you to decide. As for me, I’ll be sitting it out until the short interest picture begins to clear up.  

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 InvestorPlace since 2019.