Like most of its EV (electric vehicle) peers, Ayro (NASDAQ:AYRO) stock soared in November. But, as the bubble in this sector starts to pop, don’t expect this small player to hold onto its recent gains.
Why? While it talks a big game in its press releases, this company’s odds of success are much longer than the larger early-stage EV makers out there. Namely, due to the niche this company is targeting. Instead of building sedans, SUVs, or trucks, it’s building three-wheeled vehicles.
In other words, similar to what Electrameccanica Vehicles‘ (NASDAQ:SOLO) is doing with its flagship Solo three-wheeled vehicle. Sure, there’s potential in the more specialty EV markets. But, likely not as much as investors are currently pricing into either stock.
The result? In the case of this three-wheeled vehicle maker, further big declines could be on the horizon. Given shares popped on speculation, not improved fundamentals, there’s not much to support it, as speculators head for the exits.
Recent Pullback Only The Start for AYRO Stock
With the “Biden boost” over and done-with, investors may resume pricing EV stocks on their particular prospects. What does that mean in the case of Ayro?
Given it’s targeting a small segment of the market with its Ayro 311 and Club Car 411 models, the runway with this company is much smaller than what you get with the EV makers targeting the regular car and truck markets.
Yet, that’s not to say the company doesn’t have potential. Sure, Trailing 12-month sales are just under $1 million. But, with its partnership deal with Karma Automotive, it could ramp up production in the next three years.
Also, the company has two major sales partnerships under its belt. Firstly, as InvestorPlace’s Will Ashworth discussed in August, the sales partnership with Ingersoll Rand’s (NYSE:IR) Club Car division. This unit produces golf carts, with college campuses one its end-user markets.
Secondly, its sales partnership with Gallery Carts, a maker of food trucks. Per statements made by CEO Rod Keller on the last earnings press release, the company is targeting 20,000 deliveries, and $300 million in sales, in the next three years.
With this in mind, the current market capitalization of AYRO stock (around $220 million) doesn’t look too unreasonable. Yet, there’s a big difference between the CEO’s three-year projections and what this company will likely accomplish in the coming year. Factoring in high uncertainty, and low likelihood results knock it out of the park in the near term, investors should take these recent remarks with a grain of salt.
It’s Hard Seeing Ayro ‘Crushing It’ in 2021
Can Ayro deliver on its ambitious sales goals in the next three years? It’s debatable. While the aforementioned partnerships offer big potential, it’s hard to see how either one is going to move the needle in the coming year.
Namely, due to the continued challenges for Club Car. Yes, with Eco-conscious colleges looking to “go green,” selling educational institutions Club Car-badged EVs seems like a sure-fire hit. However, as Ashworth touched on in his August article, the closure of campuses due to the novel coronavirus has put this opportunity largely on hold. And, even a few months later, with campuses still closing due to surging cases, it’s hard to see this changing course in the near-term.
Sure, while Club Car faces Covid-19 headwinds, the Gallery Cart partnership could be experiencing Covid-19 tailwinds. You can’t deny there’s potential for food delivery vehicles to thrive in the “new normal.”
However, despite striking while the iron is hot, this doesn’t look like much of a catalyst, either. So far, the partnership has only yielded around $600,000 worth of sales orders. What’s the takeaway? Not much has changed with the underlying business of AYRO stock. With all of its gains due to speculation, it’s doubtful shares are done heading lower.
Expect Shares to Fall Back
Given little has changed with this EV maker’s fundamentals, don’t expect it to hold onto any of its gains from the past month. Even after dropping more than 45% from its highs, expect additional losses in the near-term. How much? Considering shares were changing hands at prices around $3 per share about a month ago, there’s a good we see another 50% decline from here.
So, does that mean shares could be a buy if they fall back below $3 per share? I wouldn’t go that far. Given there’s little to indicate this company will go from “zero to hero” in the next few years, even at its recent lows, shares may be too overvalued to buy.
Bottom line: steer clear of falling knife AYRO stock.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.