Amid a soft session on Monday due to investor fears about rising bond yields, electric vehicle (EV) manufacturer Canoo (NASDAQ:GOEV) pushed the red ink far deeper, shedding 12% in the afternoon session. Earlier this morning, management announced a registered direct offering, which rattled investors due to dilution concerns. Despite other viability risks, GOEV stock still commands extraordinary enthusiasm among retail investors.
Per the company’s press release, Canoo “entered into definitive agreements with certain institutional investors for the purchase and sale of 50,000,000 shares of the Company’s common stock together with warrants to purchase up to 50,000,000 shares of common stock at a combined purchase price of $1.05 per share and accompanying warrant, pursuant to a registered direct offering.”
Moreover, “[t]he warrants will have an exercise price of $1.30 per share, will be initially exercisable beginning six months following the date of issuance and will expire five years from the initial exercise date.” According to the disclosure, the gross proceeds should fetch approximately $52.5 million. Management intends to use the net proceeds for general working capital purposes.
Invariably, the main concern for GOEV stock centers on dilution. On Feb. 3, shares closed at $1.25, meaning that the direct offering comes at a sizable discount. Also, as Investopedia pointed out, warrants are dilutive. “When an investor exercises their warrant, they receive newly issued stock, rather than already-outstanding stock. Warrants tend to have much longer periods between issue and expiration than options, of years rather than months.”
Still, not everything about GOEV stock carries a clear-cut narrative.
GOEV Stock Falters But Retail Investors Hold the Line
Fundamentally, circumstances don’t appear particularly auspicious for GOEV stock. Although sector players like Tesla (NASDAQ:TSLA) enjoyed a dramatic rise in the year so far, viability concerns remain. Perhaps most notably, rising interest rates put a dent in consumer sentiment.
And while the latest jobs report may be “stunningly good” as CNBC put it, the robust labor market implies more dollars chase after fewer goods. Such inflationary pressures may inspire the Federal Reserve to continue hiking interest rates, imposing a heavy weight on consumers. Naturally, such a circumstance wouldn’t bode well for GOEV stock and similar investments in high-ticket products.
As well, it’s fair to point out that Canoo’s financials leave much to be desired. As a pre-revenue entity, one of the company’s biggest concerns centers on cash. In the third quarter of 2021, Canoo’s cash and its equivalents stood at $415 million. One year later, this metric sat at only $7 million.
However, it’s also fair to say that retail investors don’t seem to mind. According to TipRanks, out of all investors it surveyed, 0.5% of them held GOEV stock. Within this cohort, during the last 30 days, they’re up 1% in their position. As well, sentiment rates as “positive.”
Further, among what TipRanks calls top investors holding GOEV stock, they’re up 5.8% during the last 30 days. Also, sentiment for this elite cohort rates as “very positive.”
According to data from Google Finance, 30 days ago, GOEV stock closed at $1.09. Therefore, this may be the price point where an aggressive battle may materialize.
Why It Matters
In 2015, CNBC’s Jim Cramer stated that during the then-period of low borrowing costs, companies issuing stocks made sense. “Companies have been issuing equity to either pay down debt or to refinance it with cheaper debt that carries a lower interest rate.”
At the present juncture, however, circumstances flipped, with rising rates spooking investors. Under this ecosystem, GOEV stock appears riskier than usual.
On the date of publication, Josh Enomoto 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.