In recent days, shares in Mullen Automotive (NASDAQ:MULN) have made a big leap out of the stock market graveyard. MULN stock has more than doubled in price, following the latest announcement from the company.

Per a press release issued on July 6, Mullen has authorized a share buyback program. Through this program, Mullen can buy back as much as $25 million worth of its outstanding shares, between now and year’s end.

Given that the company currently has a market cap of only $41.6 million, speculators see this as a game-changer. So, should you take the same view? Not so fast!

I wouldn’t assume that things are looking up for the struggling electric vehicle maker.

Why? There is a caveat with this buyback. Not only that, this isn’t a sign that one of the largest risks with this stock is no longer on the table.

MULN Stock: What’s Behind the Recent Buybacks?

It is very irregular for an early-stage company to authorize a share repurchase. Typically, companies at this stage are looking to retain as much capital as possible, in order to maximize their growth.

So then, why is Mullen deciding to buy back a seemingly-large amount of its outstanding shares?

First off, keep in mind that, while Mullen is authorized to buy back as much as $25 million worth of MULN stock, that doesn’t mean it will do so.

Management even flat out states this in the press release, by disclosing that “the stock buyback program does not obligate the company to purchase any shares.”

While not for certain, taking this caveat into account, it’s possible that Mullen doesn’t plan to make a big repurchase. Rather, management is merely trying to win back the retail traders who have abandoned the stock in droves.

As I’ve argued in past articles on the company, Mullen’s backers have been reluctant to buy more stock/convertible securities from the company, due to waning retail enthusiasm.

If MULN is a “hot stock” again, they could resume providing additional financing. This brings us to my point above, about how a major risk remains in play.

Dilution Risk Remains

A big reason for the extremely high decline in price of MULN stock has been the company’s aforementioned heavy use of dilutive financing methods.

Leading to a manifold increase in Mullen’s share count, with little to show for it, it has destroyed a large amount of shareholder value over the past two years.

With the buyback news, you may have first thought that Mullen’s dilution days were behind it. However, assuming my theory about the motives behind the buyback authorization is on the money, more rounds of heavy shareholder dilution seem likely.

Yes, last month the company issued a press release that it has enough cash on hand to sustain operations for at least a year.

In that same press release, Mullen indicated it would not raise any more capital this year. Still, there may be some doublespeak at play with these statements.

As InvestorPlace’s Thomas Yeung argued last month, it’s questionable whether Mullen really has the cash to keep the lights on for another twelve full months.

With its cash position possibly sufficient to ride out the next months, Mullen could easily keep its word, only to quickly revert back to diluting shareholders again in January 2024.

Bottom Line: Ignore The Buyback Hype

If Mullen raises more capital next year, this will outweigh the benefits of the recently announced stock buyback program. That’s likely the case, even if management buys back the authorized maximum dollar amount of shares.

To further grow its commercial EV manufacturing operations, much less make progress with its Mullen Five passenger EV model, the company likely needs to raise hundreds of millions, if not billions, in additional cash.

At best, the company raises this cash, and uses it to scale itself into a profitable enterprise, but the heavy amounts of dilution required to achieve it result in middling returns for shareholders buying today.

At worst, Mullen continues to raise lots of money, and make underwhelming progress with its goals, leading to more rounds of shareholder value destruction.

It’s best to ignore the buyback hype now surrounding MULN stock.

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.