Chinese used car dealership Kaixin Auto (NASDAQ:KXIN) has generated a great deal of buzz among traders lately. That is because KXIN stock recently made sharp moves in both directions. Suffice it to say that October has been a wild month for owners of this stock.
After a quick drop starting on Oct. 19, KXIN might look like a prime target for aspiring short sellers. However, I would not recommend attempting to short-sell this stock.
It is dangerous to bet against a company that is operating in an expanding market. Besides, Kaixin Auto has a hybrid business model that could position the company for even faster growth. Over time, this should lead to higher prices in KXIN stock.
Is there a reasonable explanation for the meteoric rise and sudden drop in KXIN shares? We’ll present the facts of the matter and let you decide for yourself whether KXIN stock is ready to take another leg up.
KXIN Stock at a Glance
Starting in March of this year, KXIN stock traded at $1.05 or less. By early October, the share price was approaching 50 cents. For the most part, traders were not talking about this stock very much.
Then, from Oct. 14 to Oct. 19, KXIN stock rocketed to a 52-week high price of $13.40. As you would expect, this sudden price spike drew a lot of attention to KXIN in the trading community.
I do not recommend that investors chase after vertical price moves, and KXIN provides a textbook example of this. Almost as quickly as KXIN stock powered its way up, it soon fell to $3.45, brutally punishing the chasers.
On Oct. 26, KXIN stock closed at $4.56. Therefore, it appears that the worst part of the decline is in the past. Looking at the situation calmly, we can observe that KXIN is still in an uptrend since mid-October. And now, prospective shareholders can get in at a more favorable price than the chasers.
A Savvy Transformation
Kaixin Auto was founded in 2015, and the company was somewhat different compared to what it is today. Originally, Kaixin was conceived as a venture into the used car financing market in China.
In its corporate profile, Kaixin describes its evolution “from a tech-enabled financing platform into a nationwide dealer network that combines self-owned and affiliated dealers as well as value added and after-sale services.”
This does not mean that Kaixin has abandoned tech-enhanced sales modalities. In fact, the company uses a hybrid business model focusing on both online and offline used auto sales in China.
KXIN stock presents a blue-sky opportunity because Kaixin’s transformation leaves plenty of room for expansion. So far, the company has 14 auto dealerships spanning 14 cities in 12 Chinese provinces. Of course, China is quite expansive and the growth potential here is tremendous.
KXIN Stock Has an Electric Vehicle Connection
The moon shot in KXIN stock leaves more questions than answers. Yet, it is natural for prospective investors to want to know why it happened.
However, when it comes to explanations, even the company itself is at a loss. “The spike of stock price came as a surprise to people in Kaixin,” the company stated.
Kaixin also noted that “There is no change in the status of Kaixin’s business operations since the company filed the last 6-K on Aug. 23, 2020,” thereby cementing the notion that the price surge in KXIN stock defies logical explanation.
If we must venture a guess, we might point to the fact that Kaixin tends to focus on premium automotive brands. And, many of these brands have recently expanded their offerings of of electric vehicles.
That is as valid a guess as any. So, KXIN stock could benefit not only from growth opportunities in a vast market, but also from an electric vehicle connection.
The Takeaway on Kaixin Auto Stock
There was a quick rise and decline in KXIN stock, and it might be difficult to explain the wild price action.
Instead of seeking explanations, investors can stay calm and consider adding KXIN as a wager on a tech-enhanced auto dealer with a savvy hybrid business model and an indirect connection to the electric vehicle market.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.