- RIDE shares take a breather on Wednesday.
- RIDE has been on a rollercoaster ride!
- Lordstown needs cash, but investors are waiting for further developments.
RIDE shares have exhibited some pretty decent volatility recently as the news flow around the company remains negative. Investors were somewhat surprised by Lordstown’s statement after the release of its most recent results on May 24. Not only did Lordstown miss earnings estimates, posting earnings per share (EPS) of -$0.72 versus the -$0.28 estimate, but the electric vehicle manufacturer said, “We need to raise additional capital to complete our business plans and have begun those discussions.” Production was also downgraded for the company’s endurance vehicle to “at best be 50% of our prior expectations.” Shares in RIDE understandably dumped 7% after the results and negative commentary.
The situation appeared to deteriorate further on Tuesday as Lordstown made an amended SEC filing, saying, “Our current budget only provides for a limited commencement of production in 2021. […]Additional funding must be secure for production in 2022 and beyond.” While this is much the same as what the company said after its results release, it was the stronger statement that spooked investors and led to a 16.5% dump in the share price. “These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of at least one year from the date of issuance of these unaudited condensed consolidated financial statements.” Citing concerns over the actual viability of the company is slightly stronger than saying it needs to raise cash, even if reading between the lines the outcome is similar.
RIDE stock forecast
Lordstown is still exhibiting some nice technical moves, having traded down to the bottom of the channel identified here at FXStreet last week. Now the outcome is likely to be determined by the discussions with investors in relation to getting more capital. As mentioned in our previous article, this is the easiest time in the last 50 years for companies to raise money. The zero rate environment has created huge demand for yield. Junk bond issuance has soared, SPAC deals have reached record levels, and corporate transactions and issuances are at highs due to the hugely expansive monetary policy. If ever there was a time to look for emergency cash, then this is it. Lordstown is to build its range of fleet-focused electric pick-ups at an old General Motors (GM) plant. GM is a small-scale investor in RIDE. As we reported yesterday, any positive news flow is likely to be seized upon and can best be played through some options strategies.
This may work if a positive outcome is your view by buying some far out-of-the-money call options. As volatility is high, buying options is expensive, so selling a further out-of-the-money call (i.e. a bullish call spread) will help offset the cost and effects of theta (time decay). Time decay is the amount an option loses in value every day it gets nearer to the expiry date. A strangle may offer better profit potential as the volatility in the stock is high and any news flow is likely to see a large move in either direction. A strangle involves buying an out-of-the-money call and put. If the price moves sharply up or down, one option leg will show a large profit.