China-based manufacturer of autonomous aerial passenger drones EHang (NASDAQ:EH) is a company that investors should consider. Yet, it’s been hard to convince people of this lately because of the price action in EH stock.
There’s an old saying that goes, “Be right and sit tight.” This is easier said than done. Due to a recent controversy, some investors chose to dump their EHang shares.
This is an instance of a stock going down quickly mostly due to the publication of a research firm’s report. We will certainly address this report, along with EHang’s response to it.
It’s important to be aware of controversies as an investor. Yet, we wouldn’t want to let these situations cloud our judgment, particularly in the case of EHang, which released some encouraging news not long ago.
EH Stock at a Glance
Sure, there’s been an ascent and a decline in EH stock. That cannot be denied. On the other hand, the share price is still significant higher on a long-term basis.
As recently as November of last year, the stock was trading at $8 and change. After that, the bulls started to show some signs of life, pushing the share price up to $21 by the end of 2020.
That was already an impressive gain, but the story wasn’t even close to being finished yet. In early 2021, the bulls charged ahead, powering EH stock to a stunning 52-week high of $129.80 on Feb. 12.
I hinted at the bearish research report, and that appears to have put negative price pressure on EHang shares. On the morning of Feb. 26, the stock was trading at $45 and change, marking a substantial decline from the peak price.
Nonetheless, the stock price is still much higher than it was just four months ago. Besides, if you were waiting on the sidelines to jump into the trade, at least now you can buy the stock at a more favorable price point.
The Accusation
Suffice it to say that Feb. 16 wasn’t a great day for EHang’s shareholders. That’s when the stock plunged 63% in a single day, presumably due to a report released by Wolfpack Research accusing EHang of committing fraud.
The language that Wolfpack Research used is quite harsh. For instance, the research firm wrote, “Typical of a stock promotion, in just 14 months as a publicly traded company, EH’s PR team has put out 50 press releases, according to Globe Newswire.”
Aggressive promotion isn’t a crime, of course. Let’s continue with another criticism from Wolfpack Research: “EH has only collected RMB25.2million ~$3.6 million in cash since becoming a publicly traded company.”
For a small start-up in the emerging drone business, that doesn’t sound like a deal breaker. In any case, I don’t recommend that investors should simply take any research firm’s accusations at face value.
A Swift Response, and Good News
EHang’s response to Wolfpack Research’s accusations was prompt and decisive.
Specifically, EHang stated that the company “strongly believes that the report contains numerous errors, unsubstantiated statements, and misinterpretation of information.”
On top of that, EHang is considering “necessary and appropriate” action. Could this involve litigation against Wolfpack Research?
Only time will tell, but if there are false accusations contained in the report, then EHang couldn’t really be blamed for wanting to defend its reputation.
Perhaps, instead of getting bogged down in the controversy, investors should focus on the company’s progress. Recently, EHang announced that it had “successfully completed the first trial flights of” autonomous passenger drone EH216 “over the sea of Southern China.”
This could mark a significant step forward in clean-energy drone technology, and EHang deserves credit for the successful test flights.
The Takeaway
It’s tempting to get distracted by a controversy when it’s in the headlines.
Yet, investors don’t have to let one research firm’s accusations deter them from owning EH stock as EHang is making progress in advancing next-gen drone technology.
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.
