Continuing its dramatic rally from the prior session, shares of electric vehicle (EV) manufacturer Lordstown Motors (NASDAQ:RIDE) — which specializes in commercial fleet vehicles — jumped sharply again early on Friday. Interestingly, no company-specific news appears to represent a core catalyst for today. Instead, speculative fervor that broadly lifted automotive enterprises appears to have also carried RIDE stock, at least momentarily. Still, Lordstown’s comeback effort might add fuel to this fortuitous rally.
Interestingly, several beleaguered EV enterprises popped higher late this week. For example, lifestyle mobility specialist Canoo (NASDAQ:GOEV) — which got off to much fanfare following its initial public offering (IPO) — jumped 9% on Friday before tanking to 0.26% by market close. Over the past five sessions, GOEV is up around 20%.
Similarly, commercial EV maker Workhorse (NASDAQ:WKHS) was left for dead after failing to secure a pivotal contract with the U.S. Postal Service. In the late afternoon session, WKHS dropped about 1%. However, over the trailing five sessions, it returned about 23% for stakeholders.
According to trading expert Dennis Dick, Carvana (NYSE:CVNA) likely kickstarted the robust sentiment that lifted names like RIDE stock. Specifically, the short-squeeze sentiment that catapulted CVNA to blistering gains this year may have filtered down to other speculative wagers.
Essentially, the message may be that if Carvana — which faced legitimate bankruptcy concerns — could turn itself around thanks in large part to meme-like speculation, other embattled entities may enjoy a similar reprieve.
RIDE Stock and the Possible Comeback
Another explanation for the surge in RIDE stock and other EV-related investments originates from Barron’s Al Root. With no one company event appearing to spark the rally, Root identified macroeconomics as the catalyst. Specifically, with U.S. consumer prices rising about 4% year-over-year, it’s a slower rise than economists had forecast.
Still, investors should be careful with this thesis. While slower inflation could convince the Federal Reserve to eventually lower benchmark interest rates — thereby facilitating EV business expansion and consumer/client adoption — the reason for the deceleration presents concerns itself.
In analyzing the May jobs report, the AP noted that the length of the average work week and hourly wage growth declined. Fundamentally, cooled inflation from labor market weaknesses wouldn’t necessarily bode well for RIDE stock and the broader EV industry. Sure enough, InvestorPlace’s Jeff Remsburg highlighted that deflation represents the new concern.
Ultimately, Lordstown may have an opportunity to sustain its present rally through its own actions. Last week, the EV manufacturer announced that it plans to take legal action against investor Foxconn — which also goes by the trade name Hon Hai Precision Industry (OTCMKTS:HNHPF) — for breach of contract. In particular, Lordstown seeks to ensure that the Taiwanese contractor manufacturer completes a planned purchase of nearly 10% of RIDE stock.
Earlier, Lordstown warned that it may be forced to file for bankruptcy due to uncertainties over Foxconn’s $170 million investment deal. Should the agreement go through, Foxconn would own nearly a 20% stake in Lordstown.
Why It Matters
Although the surge in RIDE stock seemingly offers a lifeline to beaten-down shareholders, prospective investors must exercise caution. Only one analyst within the past three months covers Lordstown, and that expert — R.F. Lafferty’s Jaime Perez — pegged shares a “sell.” Notably, the price target sits at 45 cents, implying roughly 90% downside risk.
Equally important to keep in mind is that today’s gains may have just been a flash in the pan. By the market’s close, RIDE’s early morning 25% rise turned into a 0.48% decline.
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 risk.
Read More: Penny Stocks — How to Profit Without Getting Scammed
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.
