Caution Is Key if You Choose to Go Contrarian on Cenntro Electric Stock

CENN Stock - Caution Is Key if You Choose to Go Contrarian on Cenntro Electric Stock

Source: Cenntro Automotive

Although it is one of the also ran electric vehicle (EV) plays, Cenntro Electric (NASDAQ:CENN) has a lot going for it. At least, that is what it seems like on paper. Based on its touting of its $250 million cash position, 2021 delivery numbers, and $2.1 billion in sales by 2023, CENN stock may seem like a bargain. Its current market capitalization today comes in at just $462.4 million. But before you run out and dive in, keep in mind that, like other small EV names, this may be a “too good to be true” situation.

That is how the market is approaching it. The stock, previously known as Naked Brand Group, or NAKD stock, is down massively from what it traded for before its reverse merger with this once-private EV startup. It did receive a big boost in March when it zoomed from $1.25 per share back to as much as $3 per share. This, however, was likely a short-lived “meme wave,” when you consider the elevated talk about it on Reddit at the time. Why are investors staying away? For starters, there is uncertainty over its ability to live up to expectations.

As my InvestorPlace colleague Larry Ramer argued back in February, its success so far isn’t all that impressive. For all its talk of selling more than 3,600 of its vehicles to date, when you take into account it has been selling its flagship vehicle for five years, it really hasn’t made too many sales. This makes the prospect of it selling 74,800 of its vehicles — its 2023 sales target — seem far-fetched.

That is not all. $250 million in cash may sound like a lot for a small-cap company like this one. But it may not be enough to fund its expansion into a multi-billion dollar business. Future capital raises, possibly dilutive to existing shareholders, may be in store. Again, this is why investors have largely stayed away and why it is deep in penny stock territory. Adding to this, there is now something you can regard as a bona fide red flag. As another of my InvestorPlace colleagues, Mark Hake, argued Apr. 12, the fact that Cenntro’s auditor has resigned is a troubling sign.

This could signal that things aren’t on the up-and-up with this company. If more related news comes out, it could result in the stock falling back to its lows of $1.05 per share, versus $1.75 per share. Or worse, to even lower prices. So, what is the takeaway with CENN stock? At first, it was simply a long-shot EV play. Now, it is a long-shot with a concerning red flag. If you choose to go against the crowd, you may only want to risk what you can afford to lose.

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.


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