One of the strongest memes in investing is the rise of the electric vehicle. This thanks, in large part, to the hard work that Tesla (NASDAQ:TSLA) did to establish EVs as the potential replacement for the internal combustion engines. There have been a few disappointments like what happened to Nikola (NASDAQ:NKLA) last year. This year it’s Lordstown Motors (NASDAQ:RIDE) and RIDE stock.
Recently there are rumblings about troubles brewing at Lordstown. Until we learn more about this, the outcome for RIDE stock is somewhat binary.
For this reason alone I would put the stock in the penalty box. I will keep this opinion for as long as the company is scrambling to secure resources. Investing is tough enough without such a hurdle, so I see no need to engage.
When investing in a stock I need to know that I have an edge. In this case “binary” means a coin flip. By definition, this doesn’t pass the smell test for my investing parameters. This should not dissuade the true believers who are in it to win it at all costs. RIDE seems to have absorbed the headline shock fairly well.
RIDE Stock Can Overcome This Wrinkle
If NKLA survived the skepticism, then RIDE can too. The recent bearish strategic developments are significant. Those who own shares must infuse a bit of doubt in their thesis.
I am not one who reacts to rumors, but in this case management has said they are pursuing strategic alternatives. This is code for them needing money and quickly. Needing cash to operate is a legitimate threat to survival of an upstart. Keep your ears to the ground as the large investor opinions matter like Workhorse (NASDAQ:WKHS), for example. Taking guidance from their actions will matter.
I respect the EV onslaught, but I am not a fan of EV stocks without current successful fundamentals. I am on board with Tesla, Nio (NYSE:NIO) and XPeng (NYSE:XPEV). All three have successful businesses now that they are trying to grow. I don’t like to put money at risk based on hope of future prospects. And expectations of future successes make up the entirety of RIDE stock. That is not my style because as I prefer at least a tangible base of business.
My lack of faith shouldn’t be an insult to fans of Lordstown. Not everyone has the same risk tolerance, so there are differences of opinion. My preference is to avoid investing in a company that is struggling to raise cash.
Draw Clues From the Chart
When there are no fundamentals, I usually resort almost exclusively to the charts. RIDE is about midway between the May lows and the June highs. This is a limbo status with no immediate technical catalysts. At this point, there’s nothing to do for those who own it but wait. It appears to have stabilized around $10 per share.
If, for whatever reason, it falls another buck, then it’s likely to set a new low. Conversely, if it rallies into $15 per share, I would be looking to get out. I also need to warn the bears against shorting it. RIDE may still be part of the Reddit meme posse tickers. This social media phenomenon is too unpredictable, and extremely dangerous. If the urge to short is irresistible then I would use options where the risk is finite. Otherwise it’s best to let it be and wish the investors good luck. This would earn you good juju in the long run.
Owning it for the very long term is a matter of faith. For my investing style, I need to have an edge on my competition. In this case, I lack it, therefore, I would not be a buyer. There are better EV stocks to trade so I fail to see the need to stay in RIDE stock. I wish it all the best but it is not on my watch list, not even on dips.
On the date of publication, Nicolas Chahine 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.
Nicolas Chahine is the managing director of SellSpreads.com.