I’ve been writing quite a bit about electric vehicle (EV) plays like Canoo (NASDAQ:GOEV) stock.
Every time I have, I constantly said they were way overvalued and that sooner or later, a reckoning was going to wash away a significant amount of profits that investors has accumulated.
If you got out with some profits, hats off to you. If you’re still holding and hoping, then the two words you want to think about right now are: average down.
That means if you bought GOEV at $20, if you pick up the same number of shares at $7, your average purchase price is about $13.
Certainly, cold comfort for new investors who thought SPACs turned EV stocks were going to fund their early retirement in a few years.
Remember, institutional investors control more than 80% of the market. When they move, the millions of professional traders they employ aren’t playing around, and it’s no time to fight the tape.
GOEV Stock Is Just Caught in the Undertow
GOEV stock isn’t suddenly a bad company. Nor has it made any announcements that have soured investors on its fortunes.
Then why is the stock down 61% in the past 12 months and 27% in just the past month? Because, you know, Covid. And interest rates. I know that sounds like a lame excuse, and it likely is. But that’s what they’re telling us.
Personally, I’m guessing it is sector rotation for 2022 and professional traders have run these companies with no earnings or profits up as far as they can go. With a very difficult position for the Federal Reserve to navigate and continued dysfunction in Washington, it’s time to put money into companies that have real earnings and profits.
It has slowly started to affect the crypto markets, too. All these speculative investments are going to come under pressure.
None of this should be a surprise.
Are You a Trader or an Investor?
The real question is are you in the EV sector for trading glory or for long-term investing in a new growth sector?
If it’s the former, then hopefully you’ve moved your hot money elsewhere or covered your long positions with shorts to protect your downside risk.
If it’s the latter, then it’s time to make sure the stocks you’re holding have the kind of management and products that will be able to make it.
I love this list of defunct car companies. It puts into perspective the number of people who have launched car companies in the U.S. since around 1900. You’ll notice that many disappeared by 1920, when Henry Ford started his production line assembly.
But the larger point is, history informs us that with the dawn of a new age in transportation alternatives, car may be part of it, but not a centerpiece as in the past.
And early adopters have great advantages, but also have greater risks if mismanaged.
Falling Knife or Bottom Fishing?
GOEV stock has been put in its place. It now sports a “modest” $1.6 billion market cap. But like many of its hopeful EV brethren, it still has yet to get a significant number of cars on the road.
However, GOEV has continued to receive solid praise for its platform and has done a good job keeping its models simple, yet flexible. This is crucial to being able to produce them and scale-up.
And GOEV has even raised its output expectations and it’s also moving production to the US. Those are both very positive steps.
But the markets don’t care. The whole sector has been overvalued for a while and this is the payback.
However, if you’re a long-term investor in EVs, GOEV stock is starting to look like a buy in the next few weeks.
On the date of publication, GS Early 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.
GS Early has been an award-winning financial writer and editor for nearly three decades, working with many of the leading financial editors during that time. He’s seen a few things and hears more.