At This Level, Risky Canoo Stock May Be Appealing to Hyper-Growth Investors

The EV sector is absolutely booming right now. For investors in Canoo (NASDAQ:GOEV) stock, the hope is that the momentum of EV names can resume. Indeed, in the past few months  speculative post-SPAC growth plays have not done as well as hyper-growth investors would have liked.

An electric semi truck charging.

Source: Scharfsinn /

There are a number of reasons for that. A rotation away from growth stocks into value stocks appears to be taking form. And bond yields are rising, driving investors to bonds and bond-like equities.

That said, the thesis underpinning growth stocks isn’t dead. Finding companies that are growing (or expected to grow) much faster than the overall market has been a proven recipe for success over the long-term. Investors in companies like Canoo are buying into such a thesis.

Canoo, however, is still a “story stock.” It’s a pre-revenue company with a great idea for a product. It’s a company with a tremendous number of changes underway (I’ll get to that in a minute). But consumers won’t have a chance to buy a Canoo vehicle until 2022. How patient investors will be is the key question regarding GOEV stock.

Accordingly, let’s take a look at Canoo’s background  for those unaware of what the company is all about.

A Revolutionary Vehicle Design

One of the things investors like most about Canoo is that it’s completely changing the way consumers think about EVs.

The company has designed a unique “skateboard” multi-purpose platform that can be used across all its vehicles. The design maximizes the space inside the cabin, paving the way for consumers to eventually work inside their vehicles. Canoo has designed its three models to accommodate self-driving capabilities and is often thought of as the vehicle maker of the future.

For long-term, hyper-growth investors, Canoo’s vehicle lineup is intriguing. It’s like nothing we’ve ever seen before. And the company hopes investors will buy into the growth story Canoo is telling right now.

GOEV Stock Poses Some Serious Risks, So Trade Carefully

As I mentioned, Canoo is a highly speculative pick. I really view this stock more like an option right now on how bullish investors will be on the EV space.

During the company’s most recent earnings call, some additional risks came into focus for investors. These risks were primarily responsible for the shares’ drop of well over 50% from their peak.

The company noted that it would not be providing engineering services to other automakers who want to utilize Canoo’s multi-purpose platform technology. Investors seem to be unhappy with that, as the company had previously expected to generate a significant amount of revenue from those activities. As part of the latter initiative, Canoo had planned to partner with Hyundai, and it now appears that the alliance is dead.

Additionally, the subscription model I recently wrote about and was extremely intrigued by has been largely abandoned. The company cited balance sheet risks related to this model as reasons for shifting, in large part, to a direct-to-consumer sales system. That was another big blow to GOEV stock.

Yet another shakeup is taking place in the company’s C-suite. The CFO is being replaced, and the CEO was not present on the company’s last earnings conference call. Investors didn’t seem to like the rapid change to what many saw as Canoo’s best qualities.

Indeed, if more changes are on the horizon, investors will need to change their valuation models of this company further. The changes already made do alter the valuation of  GOEV stock, and I think the selloff was warranted.

However,  the moves could ultimately boost GOEV stock. Investors want certainty, and a new management team may do the trick. But there are still question marks about Canoo’s outlook, and these uncertainties are rightly making investors hesitant to buy GOEV stock.

The Bottom Line

GOEV stock is a high-risk, moderately high-reward name. In my view,  the shares are still attractive for risk-tolerant investors.

However, I do not like the changes that Canoo recently announced. Specifically, I don’t agree with its decision to deemphasize its subscription sales model. I think a new management team could do wonders for this stock, but the company has not yet proved itself in the marketplace.

Accordingly, the shares are too risky for me.

However, I also think that every stock becomes a speculative buy at some price. The stock market is everyone’s favorite casino right now, so putting a few chips on Canoo might pay out over the long-term.

For investors to profit from GOEV stock,  much will need to go right for the automaker. But with the way the market is tilted toward growth today, the shares could climb over the long-term.

Since  Canoo’s  stock closed at $8.21 on Friday, investors are getting a discount of nearly 20% to the SPAC offering price. That’s not a bad deal for those who believe in the company’s outlook. However, I think  you need to be a real believer in Canoo to invest in it at this point.

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

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