Over the past year, Mullen Automotive’s (NASDAQ:MULN) stock has been a rollercoaster ride, with wild price swings between 10 cents and $5. The incredible volatility has likely minted some hugely profitable trades for lucky speculators.
However, for most investors, I suggest avoiding this battleground stock altogether. Despite intriguing long-term plans, Mullen’s historical price performance and balance sheet situation make it far too risky to justify buying shares now.
Why I Think Mullen Automotive Isn’t Worth Your Time
Mullen’s supporters argue about the company’s potential.
Yes, the startup aims to launch several electric vehicles over the next 2-3 years, competing in a hot market with strong growth tailwinds. However, realizing that upside depends on flawless execution from a team with limited auto industry experience. Even then, can its products compete with mainstream EV brands if they roll off the production line as advertised? I don’t think so. It might be like comparing apples to oranges, but Apple’s (NASDAQ:AAPL) iPhones, for example, have always been the go-to choice for most people. Android smartphones sell for a fraction of the cost but receive much less love.
Meanwhile, Mullen’s strategy of continuous stock offerings has crushed shareholders through epic dilution. The pattern of the company’s management putting shareholders last makes it toxic, in my opinion. Its approach shifts much of the business risk and capital burden onto common shareholders through dilution. So, if the company eventually succeeds, today’s owners likely won’t benefit much. This awful risk-reward tradeoff makes Mullen stock uninvestable.
I rate it a clear “sell” today, and it is simply not worth your time.
Financials Show Why Mullen Is Best Avoided
I usually avoid diving into the financials of pre-revenue companies, but you should have a look at Mullen’s financials before you make an investment. The company has minimal revenue – in the thousands – yet spent over $229 million on operating expenses over that time. Last year, it burned through $740 million!
Thus, it has effectively no gross profit, and Mullen’s massive overhead costs lead to large losses and negative cash flow quarter after quarter. Funding these losses requires continual stock offerings. In the past quarter alone, Mullen tripled its outstanding share count. This mass dilution means owning a piece of the company today gives you a tiny fraction of the potential upside.
Making matters worse, Mullen no longer meets Nasdaq’s listing standards, given its sub-$1 stock price. While the company trades pending a hearing, delisting would hurt liquidity and perceptions of legitimacy.
Essentially, Mullen’s situation combines the risks of an early stage, pre-revenue biotech company with none of the upside potential. Unless execution dramatically exceeds expectations, shareholders face continued value destruction through ongoing losses and dilution.
The Bottom Line
Given the issues outlined above, prudent investors should avoid Mullen stock for now. However, it’s worth watching the company’s progress over the next 6-12 months. The milestones that would make this company even close to investable will likely take several quarters at minimum, in my view.
In the meantime, speculation around potential deals and short squeezes will continue generating massive volatility. Therefore, most investors are better off staying away.
So, I’ll be keeping this battleground stock at arm’s length for now. Those willing to gamble on a successful turnaround can certainly make this high-risk, high-reward bet. But for most investors focused on generating wealth over time, plenty of superior opportunities exist elsewhere.
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On the date of publication, Omor Ibne Ehsan 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.
