The last time I wrote about Lordstown Motors (NASDAQ:RIDE) was before it completed its merger with DiamondPeak Holdings, the special purpose acquisition company that went public in February 2019, raising $250 million to find a potential target within 24 months.
I recommended that risk-averse investors only consider buying their shares around $15, where the margin of safety was much better. At the time, it was trading around $22.
Well, DiamondPeak completed its combination on Oct. 23, 21 months after closing its initial public offering.
Lordstown’s shares started trading on Oct. 26 on Nasdaq under the symbol RIDE, appropriate for an electric vehicle startup. Like many EV startups that have gone public through a SPAC combination, it’s managed to move higher post-IPO, although not without a bit of downward volatility.
However, as I write this in early Nov. 16 trading, RIDE is flying off the shelves, up more than 9% in heavy trading. It’s moving higher due to Lordstown providing a business update, its first since concluding its merger in October.
While the news is good, I’m not sure it’s enough to keep its shares moving higher. Investors might want to wait for the honeymoon to end before thinking about buying.
At some point in the future, I do think its shares can be had for $15. Here’s why.
The Boom and Bust of RIDE Stock
The headline says it all.
“Lordstown Motors Releases Business Updates; Remains on Track to Begin Production of the Lordstown Endurance in September 2021”
What’s not to like about this kind of news? Investors want to know that the game plan is working as promised. The headline confirms this to be the case.
However, it’s only been a little more than three weeks since the merger was completed. It’s hard to imagine that some or all of the seven notable developments discussed weren’t in the offing at that point.
Why didn’t it mention them at the time? Because that would have taken away the opportunity to engage investors on its progress. Expect Lordstown to continue to deliver dribs and drabs of information every 4-6 weeks to keep the excitement building.
Take, for example, the development that Lordstown has received approximately 50,000 non-binding production reservations from commercial fleets for its Endurance all-electric pickup truck.
That’s great news.
However, when you consider that it had 40,000 reservations at the end of September, worth an estimated $2.1 billion — $2.1 billion divided by an estimated average price tag of $52,500 — and almost 27,000 at the beginning of August when the combination was first announced, you realize that the company’s only brought in $2.3 million in reservations (based on $100 deposit) in the past 3.5 months.
The odds are good that some of these $100 deposits won’t be acted upon once the vehicle is ready, if it’s ready, in late 2021.
Collectively, all seven developments are an impressive display of organizational efficiency. Looked at independently, there’s not much meat on the bone.
For example, it plans to have 500 employees by the end of the year and 1,500 by the end of 2021. As of Nov. 16, it had 250 employees and 150 contractors. Come hell or high water; you can be sure that it will report it has 500 employees before the end of the year.
In six weeks, it will double its workforce. Aren’t you impressed?
I’m not trying to rain on Lordstown’s parade, but Lordstown’s press release reminds me of the W.C. Fields quote, “If you can’t dazzle them with brilliance, baffle them with b.s.”
It’s investor relations 101.
There’s very little in the press release that is earth-shattering. I might feel differently if it hadn’t just merged in late October.
However, it does mention that it will be producing beta prototypes in early 2021, using the production lines at its Lordstown, Ohio, plant. When the first one rolls off the assembly line, I can assure you it will have media coverage of the event.
What Does This Mean for Investors?
While it’s great for investors and Lordstown backers to be excited about the future, it’s important to remember that a lot of water’s got to flow under the bridge before the Lordstown Endurance hits America’s roads.
A lot can go wrong. And a lot could go right. But you need to be able to differentiate between legitimate game-changing news and fluff meant to distract you from the fact it’s got a good 14 months before a vehicle is ready for commercial delivery.
Until then, the strong hands and weak hands will have a tug-of-war with its share price.
For me, $15 remains the entry point.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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.