One electric vehicle manufacturer that’s gone from obscurity to celebrity recently is Electrameccanica Vehicles (NASDAQ:SOLO). This company has a funny name, but SOLO stock is quite familiar to the trading community in 2020.
Just because it’s familiar, however, doesn’t mean that everybody likes it. It’s not difficult to find skeptics on financial message boards who don’t believe that there’s a future for one-seater vehicles.
There’s no way to quell all of the critics. Yet, perhaps it’s possible to address the concerns of one well-known and particularly harsh short seller who recently published a scathing rant about SOLO stock on Twitter (NYSE:TWTR).
As a patient and informed investor, sometimes you just have to withstand the criticism and hold your position. Let’s see if SOLO stock truly is a worthy investment despite the acrimonious verbal attacks.
A Closer Look at SOLO Stock
One thing that no skeptic can deny is that SOLO stock is much higher in November than it was at the beginning of 2020. It’s amazing to consider that SOLO started the year as a $2 stock and even dipped to $1 during the novel coronavirus crisis.
The stock settled at $8.56 on Nov. 25 after peaking at $13.60 just a few days prior to that. In reality, stocks don’t just go up in a straight line and retracement is a normal part of a bull cycle.
Oftentimes, these pullbacks occur because large-scale investors are taking profits after a sharp run-up in the stock price. It’s doesn’t necessarily mean that there’s something wrong with the stock or the company.
If anything, the drawdown is an opportunity for folks who missed the move to $13 to get in at a more favorable price point. A prudent strategy might be to accumulate a few shares now, and then add few more shares if the SOLO stock price continues to dip.
A Notorious Short Seller
One of the most well-known research firms and short sellers in the financial markets is Citron Research. This is a firm that doesn’t pull any punches, to put it mildly.
We might recall, for example, the time when Citron attacked electric truck manufacturer Nikola (NASDAQ:NKLA). Referring to fellow research firm and short seller Hindenburg Research, Citron tweeted, “Congrats to Hindenburg for exposing what appears to be a total fraud… [Nikola’s] response warrants an SEC investigation to maintain integrity of EV mkt.”
Does Citron have a vendetta against up-and-coming electric vehicle makers? It might feel that way as the short seller recently launched a pair of aggressive tweets targeting SOLO stock.
Usually, it wouldn’t even be worth the time and effort to address one firm’s criticism. However, Citron’s tweets have received a great deal of attention. So, is there validity to the firm’s skepticism?
Nothing ‘Laughable’ Here
I wouldn’t want to misquote Citron, so here’s the first tweet in its entirety:
“$SOLO is a COMPLETE JOKE. tgt $2 Where other EV might be overvalued, this is laughable. Under $6 mil R&D last 12 months and 6 cars delivered in 2 years this stock will be the first to trade back to $2 when frenzy over. Nothing here..company run out of an apartment building.”
And, here’s the follow-up tweet:
“$SOLO is the EV trade for the real sucker..not one real institutional investor here….they had a going concern just a few weeks ago. OMG..over $1 bil mkt cap”
Personally, I don’t see having a market capitalization over $1 billion as being a bad thing. Moreover, I couldn’t care less about whether institutional investors have gotten involved yet. It’s not unusual for hedge funds to wait and watch on the sidelines as a start-up gains traction.
Also, how much money does Citron expect a small start-up to spend in a year on research and development? Considering Electrameccanica’s size, spending less than $6 million doesn’t seem unreasonable to me.
Finally, Electrameccanica certainly isn’t the only electric vehicle start-up that hasn’t had many deliveries yet. The strategy is to build a foundation now for strong sales later on, perhaps even in 2021.
The Bottom Line
Citron’s $2 price target seems too harsh, as does the short seller’s claim that SOLO stock is a “joke.”
Patient and loyal investors can ignore Citron and other critics as Electrameccanica’s growing pains should be in the rear-view mirror in the coming years.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
