- After cratering below $1 per share, MULN stock zoomed higher during the past month
- Investors may be tempted to fade or chase shares to take advantage of their newfound popularity
- Both propositions are risky, making the best course of action to simply avoid MULN stock
It looked like it was game over for a number of “also-ran” electric vehicle (EV) stocks in recent months. For instance, Mullen Automotive (NASDAQ:MULN), which began trading on the Nasdaq exchange in November around $13 per share, lost 96% of its value when it hit a low of 52 cents in late February.
In the past month, though, MULN stock has made a big recovery. Shares skyrocketed 410% to around $3.20. Their rise out of the market graveyard can largely be attributed to the early-stage EV maker becoming a popular target of retail traders.
While the rally could last longer than skeptics fading it can remain solvent, that doesn’t mean you should buy MULN stock at today’s prices. With plenty of red flags and the company likely years away from hitting its “payoff” moment, those chasing shares could be in for a rude awakening when (not if) the mania fades and the company’s poor fundamentals come back into focus.
An Influx of Hope and Hype Boost MULN Stock
Like other small and micro-cap EV stocks, such as Cenntro Electric (NASDAQ:CENN) and Electric Last Mile Solutions (NASDAQ:ELMS), Mullen Automotive took a beating between November and late February as sentiment for speculative growth stocks swung from positive to negative. Rising inflation, fear of higher interest rates and the prospect of an economic slowdown convinced many it was high time to ditch these riskier plays and seek shelter in safe-harbor investments.
Yet, in the case of MULN stock, this downward trajectory reversed in a big way this month as the relatively obscure EV maker popped up on the radars of Reddit traders. As the number of mentions about the stock spiked on social media, so too did trading volume in shares.
Part of retail traders’ excitement over MULN stock was due to the company’s latest update on its development of a solid-state polymer EV battery. Although the details indicate Mullen is years away from actually bringing it to market, the headlines were enough to send shares up 145% in a single day.
Some of the hype around MULN stock may also be due to its potential as a short-squeeze play. However, it’s unclear whether a short squeeze is happening. As of Feb. 28, around 1.9 million shares were sold short. But it’s confusing whether the stock’s total float is 4.5 million shares, as reported by Yahoo! Finance, or if the float is 22.3 million shares, as reported by ShortSqueeze.com.
Why You Shouldn’t Fade or Chase the Rally
No matter the root cause of the rally, what’s of most importance now is whether MULN stock is a good buy. The answer? Before diving into why you shouldn’t chase it, I’ll admit that betting against it (via a short position) is a risky move.
Shares gained another 10.7% today, and it’s far from certain whether they have peaked. More positive headlines about the company and/or positive chatter on social media could extend the rally. Or perhaps a short squeeze could result in one more outsized move to the upside.
While the risk/reward proposition of shorting MULN stock looks unfavorable, so too does going long at current price levels. Yes, Mullen Automotive looks “cheap,” with such a low share price and a market capitalization of just $112 million. But per its most recent financials, this EV startup is running on empty.
As of Dec. 31, the company had just $360 in cash and $61,100 in restricted cash. And as a Seeking Alpha commentator recently detailed, management raised capital under terms that may result in heavy stock dilution.
Even if the company finds success two years out (when it plans to begin deliveries of its flagship Mullen FIVE electric crossover), slicing the pie into many more slices will result in few, if any, gains for investors diving in today.
Ignore the Buzz Around MULN Stock and Look Elsewhere
I can’t tell you whether the mania surrounding Mullen Automotive will fade next week, next month or even further down the road. But it will fade. Once this happens, there’s a good chance MULN stock falls back below $1 per share, given the recent issuance of dilutive securities.
With the potential gains from going long (or short) not worth the risk, ignore the buzz and take a pass on MULN stock.
On the date of publication, Thomas Niel 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.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.