In many instances, short-squeeze targets are just meme stocks with poor risk-to-reward profiles. However, there could be an occasional exception to the rule. In fact, Canoo (NASDAQ:GOEV) stock might actually be one of those exceptions, albeit with the ever-present warning of caveat emptor (“let the buyer beware”).
The electric-vehicle (EV) graveyard is filled with start-ups that seemed promising before the Federal Reserve raised borrowing costs. However, it isn’t 2021 anymore, and only the strongest EV manufacturers will survive the current backdrop of high interest rates and low investor tolerance for small, speculative businesses.
Yet, Canoo may be a rare survivor. Just be sure to conduct your full due diligence on the company before considering any investments, and understand that volatility is the norm with GOEV stock.
Beware: April Fool’s Day is coming
First and foremost, prospective Canoo investors should know that there’s an upcoming sink-or-swim moment for the company. Specifically, the company is set to release its fourth-quarter and full-year 2023 financial results on April 1.
Hopefully, there won’t be a nasty April Fool’s Day surprise in the form of unfavorable results. However, it’s hard to imagine that anyone would have high expectations for Canoo at this point, at least from a financial standpoint.
Canoo’s third-quarter 2023 financial report paints a less-than-ideal picture of its financials. It might seem encouraging that the company had cash and cash equivalents totaling $8.3 million as of Sept. 30. On the other hand, the company also incurred a net loss of $112 million in just the third quarter and a comprehensive loss of $273.6 million in the nine months ending on Sept. 30.
In other words, reluctant investors may wonder how much longer Canoo’s capital runway will last. For what it’s worth, the company has reached its “revenue-generation phase,” according to CEO Tony Aquila. However, it’s also indisputable that Canoo still has “things left to prove,” in his words.
Above all else, Canoo has to prove its long-term viability in the highly competitive EV-manufacturing field. Along these lines, perhaps the most promising development is that the U.S. Postal Service agreed to purchase battery-electric vehicles from the company.
Unfortunately, the Postal Service’s purchase order is only for six Canoo vehicles so far. Nonetheless, once a company gets its foot in the door with a government entity, there’s a possibility of bigger purchase orders in the future.
A much larger purchase order came from the private sector — from commercial van provider Kingbee. An agreement between the two companies stipulates that “Kingbee will purchase 9,300 Canoo vehicles with an option to increase to 18,600 vehicles.”
That’s a decent-sized vehicle order and a potentially substantial revenue source. However, it likely won’t make a difference either way when Canoo releases its quarterly results on April Fool’s Day.
The big split… and the big squeeze
On March 18, GOEV stock skyrocketed, soaring 49.48% to $2.90. Obviously, this share-price move wasn’t due to an earnings report since the next quarterly report isn’t due to be released until April 1.
However, Canoo did publish a press release that morning, although one might wonder whether it would justify a nearly 50% stock-price move. The press release in question announced that the U.S. Department of Commerce had approved Canoo’s Oklahoma City EV-manufacturing facility as a Foreign Trade Zone.
Canoo explained that the key benefit of this designation is that “customs, duties and tariffs related to imports” will be deferred. Moreover, for international EV sales, Canoo anticipates that the Foreign-Trade-Zone designation will “significantly enhance profitability by lowering the vehicle cost by up to 5% on parts imported from the rest of the world.”
There’s no denying that this is a positive development for Canoo, but somehow it’s hard to believe that its value should be 50% greater. I can’t prove this, but I strongly suspect that there was a lot of short covering happening on Monday.
Whatever the case may be, it’s encouraging to see the Canoo share price firmly above $1. That’s important because the Nasdaq (NDX) exchange has been known to de-list stocks that trade below $1 for a prolonged period of time.
On the other hand, GOEV stock wouldn’t be above $1 if Canoo hadn’t enacted a one-for-23 reverse stock split on March 8. Some investors might consider this to be an act of desperation from a financially challenged EV maker.
Alternatively, one might view the reverse stock split as Canoo doing what it has to do to stay in the game. If you’re on board with that — and if you’re ready to take an unpredictable ride with an intriguing little EV-market contender — then a small share position in Canoo may be appropriate for you.
