When it comes to investments like Cenntro Electric (NASDAQ:CENN), you’ve got to ask the basic question. Following a transition from online lingerie retailer Naked Brand Group, Cenntro, as its name suggests, specializes in electric vehicles for commercial fleet operators. That’s all fine and well, but what exactly does CENN stock has to do with intimate attire?
To be fair, companies don’t have to seek acquisitions that make intuitive sense. Recently, for instance, AMC Entertainment (NYSE:AMC) announced a 22% stake in gold-mining firm Hycroft Mining (NASDAQ:HYMC). I understand why AMC made the move; precious metals appear favorable under the current inflationary environment. But at the same time, for AMC to buy Hycroft’s equity implies strongly that the core cineplex business has a limited future.
With CENN stock, we have somewhat of an opposite situation. As my InvestorPlace colleague David Moadel mentioned, “Naked Brand is gone and hardly missed.” And the EV segment is a massive growth market, particularly as European leaders scramble for alternatives to fossil-fuel infrastructures amid Russia’s attack against Ukraine, per the Yale School of the Environment.
In theory, then, CENN stock should rise because the underlying company traded a slow, easily commoditized business for a relevant, burgeoning one. But as the security’s year-to-date loss of over 72% demonstrates, it’s not so simple to compete in the EV realm.
For one thing, the wasteland of special purpose acquisition companies (SPACs) pivoting to the EV industry confirmed that participants need robust financials to survive the often-violent ebb and flow of the sector. Cenntro arguably doesn’t cut the mustard.
Second, the conflict in Ukraine has plunged the automotive industry into a new supply chain crisis, according to the Wall Street Journal. So good luck getting the components necessary to hit ambitious production goals. If that wasn’t enough, China’s zero-tolerance coronavirus mitigation strategy threatens wider lockdowns in the country, posing extreme risks for CENN stock.
Finally, if it were so easy to save a flailing business by pivoting to EVs, more businesses would have done that. Therefore, with all due respect, CENN is a pass for me.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
On the date of publication, Josh Enomoto held a LONG position in AMC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.