Mullen Automotive (NASDAQ:MULN) has made news in recent weeks, but there’s one relatively small development that could have a much larger impact on MULN stock than you’d think at first glance.
Last month, Mullen sued an online tech publication, seeking damages related to statements made in an article from this publication, regarding the settlement of another suit involving this electric vehicle maker.
It is perfectly fine for the company to fight back against published claims. Still, this news may actually be a major negative for the stock in the future.
Let’s take a closer look at this, as well as other developments, and see why it’s best to avoid this stock.
MULN Stock and the Dot.LA Suit
Here’s a more detailed breakdown of the suit. On March 28, the company filed a civil complaint for defamation against Dot.LA in the Superior Court of Delaware.
While not referenced in the press release that made this announcement, this complaint has to do with an article Dot.LA published the previous week.
The story discussed Mullen’s settlement of litigation related to its deal to import DragonFLY K50 vehicle kits from Qiantu Motors for re-engineering/re-sale in the Americas as the Mullen GT and Mullen GTRS.
Mullen has not publicly stated what were the “false and defamatory” in the article. Yet looking at it, it’s clear why the company was displeased. With the report portraying the company in a terrible light, this is clearly something that may further sour sentiment for MULN stock.
Even if Dot.LA went too far in its criticism, Mullen may have done itself a disservice by publicizing it in a press release. This action may bring increased attention to the many issues/risks currently at hand.
The Last Thing This Company Needs
Trading for just a dime per share, it may already seem like MULN stock has fallen completely out of favor among investors. Still as it may seem like shares have hit rock bottom, don’t assume that downside risk from here is minimal.
As I recently argued, downside risk here remains very high. The possibility of Mullen having to raise a substantial amount of capital to proceed in the transition from pre-revenue to production is a continuing issue.
The resultant dilution from these capital raises will probably send MULN to even lower prices. Many in the investing public are aware of this. That’s why the company continues to sport a nearly $380 million market cap, despite its heavy losses and negative book value.
However, if Mullen continues with this suit, and this aspect of the “story” behind MULN becomes the subject of further coverage in the financial press, it may be enough to erode what remains of any bullishness. More negative press is the last thing this company needs right now.
With more positive developments (such as news of Mullen’s initial deliveries of its Class 1 EV cargo vans) helping to provide some support for shares, if you currently own MULN, take the opportunity to make your exit.
It’s unclear whether the company will prevail in this suit, much less collect substantial damages. However, keep in mind that this, like other recent positive news, may provide only a small, temporary boost for the stock.
Conversely, additional negative news, or increased attention to Mullen’s many risks, could drive the next big plunge. That may mean a move for shares from a dime to a nickel, or perhaps even down to prices near a penny.
As this suit stands to hurt more than it helps, sell MULN stock if you own it, avoid it if you do not.
MULN stock earns an F rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.