I wrote about Canoo (NASDAQ:GOEV) about a month ago. At that time, I said GOEV stock was cheap enough to warrant a second look. After a couple of (likely short interest fueled) spikes, the stock is trading at $8.
The company will report earnings in August. I expect that may generate more enthusiasm. In fact, Jaime Perez of the analyst firm R.F. Lafferty boosted his price target for GOEV stock from $18 to $19. However, right now, it’s hard to see Canoo maintaining a price above $10, let alone more than double its current price.
And I say this not because Canoo doesn’t have a story. It just has a story that’s a lot less interesting that it was before.
A Fractured Fairy Tale
Once upon a time, Canoo was an electric vehicle company that was going to be different. First, it was going to bring to market an EV that was going to be more practical than pretty. It was a party van and it was going to be available on a subscription basis.
But that was then. Today, Canoo is a company that is attempting to bring a delivery van to market. I have no idea if the van is going to be pretty. And I guess you can say it’s practical. But it’s also not different.
Short Interest Remains High
Look, I have no dog in this fight. I’m not a GOEV shareholder, and I have no interest in pumping or dumping the stock. But right now, institutional investors make up a very small percentage of shareholders. By contrast, short interest remains uncomfortably high.
How high? In a prior article, Josh Enomoto pointed out Yahoo Finance, which listed the short percentage of float for Canoo shares as of June 15 stood at almost 27%. I went back to that source and found that the short interest as of July 15 had increased to over 30%. Plus, the short ratio had also climbed from around 4.5 days to more than 6 days. That means that bearish traders will need more than a week of trading days to cover their position.
And that means that GOEV stock is a prime candidate for a short squeeze. It would be for me if that interested me. Either way it says to me that investors aren’t buying GOEV stock because they believe in the company. Rather they see a chance to flip a stock and make a tidy profit.
The EV Revolution May Be at a Stalemate
The reason why GOEV stock and others like it went “to the moon” in late 2020 and early 2021 was based on the belief that “this time was different.” A new, progressive leadership in Washington was going to put an end to combustion-engine vehicles once and for all.
But as the old saying goes, things happen gradually, then suddenly. There is no question that EV technology is becoming not just disruptive, but viable. However, there are still many hurdles to clear and that is going to take a lot of capital.
Canoo has about $600 million of cash on hand. But it’s likely going to take much more to get a product to market. And if I’m an investor, there may be better electric delivery truck options.
Avoid GOEV Stock Until They Show You More
GOEV stock is cheap for a reason. The company is the target of an SEC probe and the stock is still ripe for a short squeeze. And just as significantly, the company has pivoted away from an innovative EV with an innovative subscription model to becoming a manufacturer of a delivery vehicle.
That may be a more practical solution. But investors don’t take moonshots on practical. They want to be inspired. They want the innovative breakthrough. The game changer. Canoo isn’t that any more.
If you believe they may be at some point in the future, it might be worth holding on to your shares. But only with money that you can afford to lose.
On the date of publication, Chris Markoch 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.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.
