Despite the doom-and-gloom talk that has pervaded the investment industry this year, those who understand the big picture recognize that 2020 is one of opportunity. Recently, I noted that there’s a flood of cash that’s about to enter the markets, setting the stage for a very robust 2021. But don’t use any of your investment-earmarked funds for Ayro Technologies (NASDAQ:AYRO). AYRO stock is nothing more than a pump-and-dump.
Yes, shares did fly higher last month, and it was admittedly extraordinary. On the eve of election day, AYRO stock was trading hands at $2.59. As the contentious voting process gradually revealed that former Vice President Joe Biden was the winner, this niche electric-vehicle (EV) manufacturer began mooning, to use contemporary market vernacular. At its zenith, AYRO closed at $10.60 on Nov. 23. A great pump indeed!
But the reason why I never got a positive read on the company was that its financials are terrible. In its Form 10-Q filed with the Securities and Exchange Commission, Ayro disclosed that for the three months ended Sept. 30, the EV maker generated only $388,654 in revenue. That’s not a multiple of anything — what you see is what you get.
On top of that, the loss of operations was nearly 2.4 million, conspicuously worse than the nearly 2.1 million loss in the year-ago quarter. Moreover, at its recent peak, AYRO stock featured a market capitalization north of $250 million, based on the shares outstanding count of 23.6 million in the third quarter. It’s no wonder why investors got freaked out and headed for the exits.
And that’s the main problem with pump-and-dumps. My mission in life is to direct readers toward long-term growth opportunities, not to companies where the valuation can sink in a blink of an eye.
More Trouble Ahead for AYRO Stock
Of course, I understand the appeal of AYRO stock. For a start, the market is going bonkers for anything EV-related. This has caused a FOMO effect (or the fear of missing out), with investors probing the next big hit. Second, Ayro offers a distinct take on the sector that’s away from the highly competitive passenger-vehicle segment.
Fundamentally, the main driver for AYRO stock is speculation on the company’s Club Car 411. This is an all-electric logistics and cargo platform, ideal for corporate, government and college/university campuses. Plus, with society gravitating briskly toward zero emissions, the 411 — taking aside all other issues — is a relevant innovation.
But here’s the thing — investing doesn’t work that way. You must consider risk factors; otherwise, you’re in for a world of hurt. Interestingly, Ayro’s 10-Q does a better job of presenting the bearish argument than any renowned analyst could. Before you even think about AYRO stock, you should read the risk assessment portion on page 22:
“For the year ended December 31, 2019, revenues from Club Car constituted approximately 75% of our revenues. For the year 2020, revenue projected to be generated from Club Car pursuant to the MPA [master procurement agreement] is expected to be a majority of our revenue. We are therefore highly dependent on a single customer to generate a material percentage of our annual revenues, and the lack of adoption, failure to achieve reasonable ‘sell through’ rates by the customer’s dealers, unfavorable dealer/customer experience or discontinuation or modification of terms may materially and adversely affect our sales and results of operations. Any loss of, or a significant reduction in purchases by, Club Car that constitutes a significant portion of our sales could have an adverse effect on our financial condition and operating results.”
Given the nominally unimpressive year-over-year growth of $123,173 in revenue, it’s unlikely that Ayro has diversified its revenue channel much. Therefore, both the stock and the company is basically an all-or-nothing affair.
Pandemic Headwinds Will Hit Hard
Another risk factor mentioned in the 10-Q is the novel coronavirus. Generally speaking, it’s important for investors to consider the big picture, which I mentioned up top. However, there’s no getting around that some companies will bear the brunt of Covid-19 more so than others.
As things stand, Ayro is one of those vulnerable names. Specifically, the company admits to supply chain disruptions as some suppliers are located in China. Though it’s true that China has done an excellent job containing the virus, you never know what could happen. Other countries were also successful in containment, only to suffer a second wave.
Even if Aryo manages to avoid supply disruptions, there remain questions about the target consumer base. Not all campuses may open at once, yet that’s what Ayro needs to happen to justify its ridiculous market premium.
Frankly, too many variables exist for AYRO stock. I said it before, and I’ll say it again: stay away if you don’t like losing money.
On the date of publication, neither Matt McCall 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.
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