I had never heard of Austin-based Ayro (NASDAQ:AYRO), which makes electric vehicles for urban markets until a number of my colleagues started writing about AYRO stock in early July.
While I wouldn’t bet the farm on Ayro, I see its niche focus on urban and short-haul markets as being a good one that could pay dividends for patient investors willing to stick around long enough to benefit from its growth.
Currently trading around $3.65 as I write this, the company with an $89-million market capitalization, has over $1 million in orders on the books with more likely to come shortly.
InvestorPlace contributor, Matt McCall, recently called AYRO stock a classic pump-and-dump. Here’s why I don’t think that’s the case.
Covid-19 Won’t Hold AYRO Stock Back
The company announced its second-quarter results on August 14. Sales fell 28% during the quarter to $285,927. Sales were down as a result of the novel coronavirus’s effect on its customers’ businesses.
That’s the bad news. The good news is that Ayro’s gross margin in the second quarter was 28.1%, 600 basis points higher than a year earlier. More importantly, its loss from operations fell 40% to $1.05 million. On an adjusted EBITDA basis, it only lost $682,924, 40% lower than the same period last year.
“Our second quarter financial results, starting with sales, were of course impacted by COVID-19, as both corporate and higher education institutions were re-evaluating their 2020 strategic plans with respect to their respective demand and capital spending needs.” Chief Executive Officer Rod Keller stated in its earnings release.
“However, our facilities are now all up and running, we are maintaining compliance with health and safety codes and best practices, and our supply chain is once again in the position to support our sales and marketing efforts. We are seeing re-openings in certain key markets as we head to the back half of 2020.”
Club Car Agreement
For those unaware, the company signed a Master Procurement Agreement with Club Car in March 2019, which gave the manufacturer of golf carts the exclusive rights to sell the company’s Club Car 411 model throughout North America for the next five years with renewal yearly after that.
As long as Club Car, which is owned by Ingersoll Rand (NYSE:IR), sells 500 vehicles each year, it retains this exclusivity. The company is planning to extend the MPA to Europe and Asia. In fiscal 2019, Club Car’s dealer network accounted for 75% of its revenue. In 2020, that’s expected to be even higher.
When you consider that the average sale price for the Ayro 411 is $20,000, hitting 500 vehicles in a year would mean $10 million in annual gross revenues before taking into account Club Car’s piece of the action.
Interestingly, Ingersoll Rand has asked for a right of first refusal from Ayro should it ever get an offer from an outside third party. That in itself is reason to be excited about the company’s opportunities.
As CEO Rod Keller stated in a recent interview with The Street.com’s Timothy Collins, the company’s got an excellent opportunity with the university market.
“A huge niche opportunity for the company is colleges/universities. There are 1800 universities with 10,000+ students and an average of 400 vehicles on campus that need to curb CO2 emissions. Club Car is bidding to turnover 20% of those vehicles to the 411 each year,” Keller told Collins.
“Unfortunately, university budgets are virtually frozen due to the unknown financial impact of Covid-19. On the positive side, it should create huge pent-up demand. On the negative side, that won’t translate to sales and big revenue growth until we see college life returning to normal.”
On July 9, after the end of the second quarter, Ayro announced an engineering partnership with Gallery Carts, a Denver-based provider of food and beverage kiosks, carts, and mobile storefront solutions. Together, the two companies will create purpose-built food service vehicles for both delivery and on-site hospitality.
Gallery’s already ordered $584,000 of these purpose-built vehicles with plenty more to come in the future. On July 6, Ayro announced that it had completed its plant expansion, boosting square footage by 140% to 24,000. It can now produce 600 vehicles per month. If it were to sell all 600 of its vehicles each month, the company’s revenues could be as high as $144 million annually.
That’s a heck of a lot more sales than it’s currently generating.
Between Ingersoll Rand and Gallery Carts, CEO Rod Keller’s lined up an excellent team to roll out the Club Car 411. With the 511 possibly on the way, who knows how far this company can go.
Bottom Line on AYRO Stock
If you can afford to lose your entire investment, I would say that AYRO stock is anything but a pump-and-dump. The risk is high, but the reward is higher.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.