Lordstown Motors (NASDAQ:RIDE) has been in a world of pain over the last few months. While other growth stocks and EV companies have been under pressure, RIDE stock has been buried.
Shares peaked at $31.52 in early February, just shy of the 52-week high at $31.80 from September.
However, the stock reversed hard off this high, ending that week below $27. RIDE stock then embarked on a decline of seven straight weeks and fell in nine of the next ten weeks.
It was a rough stretch, with shares ultimately falling 78.8% to a low of $6.69. It trades this morning at about $10.15.
Now some investors might say that the decline is enough and RIDE stock is worth a closer look. That may be true, but it’s still one I’d rather pass on at this time.
Sizing Up the EV Market
I’m not really sure what triggered the craze in EV stocks and SPACs. Perhaps it was all of the stimulus money pouring into the market looking for a new home. Maybe it was bored, new investors looking to make a quick buck.
Whatever the reason, retail investors were looking for the next Tesla (NASDAQ:TSLA) or Nio (NASDAQ:NIO) in stocks such as Lordstown, Nikola (NASDAQ:NKLA), Churchill Capital (NYSE:CCIV) and others.
While it was hard to short this group because the rallies were so steep and the borrow fees were pretty high, the day of reckoning was sure to come. These companies were commanding monstrous valuations for their business.
Sticking with Lordstown and Nikola, these two companies have no revenue at the moment. How could they command such lofty valuations? At the highs, Lordstown was worth more than $5 billion. Nikola had a market capitalization of around $25 billion, which rivaled Ford (NYSE:F) at the time.
It made zero sense.
One can fill the investor decks with all the promises in the world, but at the end of the day, the auto industry has historically commanded low valuations. Yet, investors are willing to assign astronomical valuations to revenueless startups while the well-capitalized, profitable and powerful legacy automakers have dirt-cheap valuations?
Granted, Ford, General Motors (NYSE:GM) and others have begun to command higher valuations lately. Still, the whole premise leading up to the pullback was ridiculous — and borderline insulting. I have no vendetta against RIDE stock or Nikola, but I agree that the stocks deserved to fall 75%.
EV is clearly the wave of the future for the auto industry, but I wouldn’t be so fast to pay a premium to the startups and sell the legacy players at a discount.
Trading RIDE Stock
Click to Enlarge
I want to reiterate that I don’t have any personal vendetta with RIDE stock. I simply find it too speculative as an investment. Some of the company’s diehard bulls may take issue with calling it speculative, but that’s the truth.
Any company that has little or no revenue is speculative. It doesn’t help that Lordstown also announced it needs to cut back its production. It also doesn’t help that there’s a bevy of competition (both in new and legacy automakers and in competing EV stocks to buy).
If I want to plunk down some cash in the EV space, I’ll do it with Ford or GM, or after the selloffs in Tesla and Nio. RIDE stock is simply too speculative for me.
For those that do want to trade it though, they must work through the levels. Notice how the post-earnings dip was bought, with shares rallying off the recent low. The stock then filled the gap near $9.30. It also reclaimed the 10-day and 21-day moving averages.
The Bottom Line
All of these developments are positive. In order for that to remain the case, we need to see RIDE stock continue its push higher.
If it can do so, it puts the 10-week and 50-day moving averages in play. Above that and the $12.50 to $12.82 area is in play. A break of the post-earnings low will put a retest of $6.69 on the table.
Speculative investments can make money too. I’m not saying Lordstown is going out of business or that its stock can’t double or triple off the lows. Instead, I feel that there are better bargains in growth stocks after the recent decline and Lordstown is too speculative at this time.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
