As Canoo Carves Out Niche, Long-Term Investors Could Buy GOEV Stock

Canoo (NASDAQ:GOEV) stock is one of the latest additions to the world of electric vehicles (EVs) that went public via a reverse merger with a special purpose acquisition company (SPAC). On Dec. 22, GOEV stock started trading at an opening price of $22.75, following the merger between Canoo, formerly a private company, and Hennessy Capital Acquisition Corp. IV, a SPAC.

A 3D rendering of a green truck in front of a blue sky.
Source: Shutterstock

The same day, GOEV stock hit a high of $24.90, after which profit-taking kicked in. With the new year, the shares fell to $12 a piece on Jan. 4. (see chart below) At that price level, CNBC host Jim Cramer gave his seal of approval to Canoo stock, which is currently flirting with $17.

Investors now wonder if the shares are a “buy” at the these levels. Those investors with four-to-five-year time horizon could consider buying GOEV stock below $17.50. Here’s why.

GOEV Stock’s Niche In EV Space

Environmental and energy security reasons are positioning EVs as a major part in the future road transport networks, according to recent research led by Charalampos Marmaras of the U.K.’s Cardiff University.

Meanwhile, the U.S. “is the third-largest electric vehicle market, following China and Europe, according to metrics from the International Council on Clean Transportation (ICCT). The research shows “overall, battery electric vehicles (BEVs) accounted for about 73% of the 2019 market, while plug-in hybrid electric vehicles (PHEVs) accounted for 27%.”

In addition to the Street’s interest in EVs and alternative energies, investors have a growing appetite for new companies, especially those that are becoming public by merging with a SPAC.

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A stock like Canoo that brings together both elements — i.e., a SPAC and an EV — gets a lot of attention. However, it is important to remember that the company does not sell any cars, yet. So today’s investors in GOEV stock are buying the expected EV that will be produced in 2022.

With Canoo, we’re looking at a multipurpose delivery vehicle (MPDV) that is like a van with spacious interiors. The company will be using a flat “skateboard”  (or the chassis) platform, which analysts regard as an important niche. Then there will be the “top hat” (or the body and interior) that can simply be attached to the skateboard.

According to management, “The skateboard supports dual, front or rear motor configurations, and is capable of achieving up to 500 horsepower and over 300 miles of range with dual motors … With the company’s skateboard, along with an efficient design and proprietary production process, Canoo anticipates new vehicle models can be developed in as little as 18-24 months, significantly faster than the average estimated timeframe across the automotive industry.”

In addition to the fast customization potential of the Canoo’s MPDVs, the California-based group is likely to have a different business model than other EV makers. It will offer a membership plan for Canoo drivers. The subscription model will mean a monthly fee.

The Street simply loves subscription-based businesses. We have seen their growing popularity in software and entertainment companies, whose share prices have soared in part thanks to the cash flow certainty offered by their subscription models.

Although it is too soon to say whether GOEV stock will benefit as much as stocks in other industries, the proposed model sets Canoo apart from other EV makers.

Bottom Line on GOEV Stock

While 2020 was a golden year for SPACs and EVs, it is hard to make predictions about the coming quarters. Given the projected growth of EVs in the U.S. and worldwide, GOEV stock’s long-term bull run could well be in its early stages. However, 2021 remains a wild card.

Potential investors could consider buying the dips, particularly here below $17.5o.

Experienced market participants may also initiate covered call positions. For instance a slightly it-the-money (ITM) covered call with May 21-expiry would offer downside protection and help reduce portfolio volatility. It would also make it possible to participate in an up move.

Finally, those who are interested in the EV space but are not ready to buy GOEV stock could also consider exchange-traded funds that provide access to alternative energy technologies and cars.

Examples would include the following:

  • ALPS Disruptive Technologies ETF (BACS:DTEC)
  • Capital Link NextGen Vehicles & Technology ETF (NYSEARCA:EKAR)
  • Global X Autonomous & Electric Vehicles ETF (NASDAQ:DRIV)
  • iShares Self-Driving EV and Tech ETF (NYSEARCA:IDRV)
  • SPDR S&P Kensho Smart Mobility ETF (NYSEARCA:HAIL).

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. 

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