Share dilution is a significant risk that investors face in the stock market. Companies can offload their risks to existing shareholders by issuing new shares, which dilutes the ownership stake and potential returns for current investors. This practice is commonly called equity financing or raising capital through equity issuance. The EV stocks to sell in this article have increased their outstanding shares considerably, either through equity financing or aggressive issuance of shares to employees as part of its compensation model.
Inflation of the number of shares can decrease the stock’s value, as the company’s earnings and assets are now spread across a larger number of shares. It can also negatively affect the dividends in the future, with existing investors (who bear the risks) now owning a smaller fractional ownership.
So, with this in mind, here are three EV stocks to sell based on share dilution. These companies could be headed to the bottom.
Lucid Group (LCID)
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Lucid Group (NASDAQ:LCID), an electric vehicle manufacturer, has faced significant challenges, including share dilution. Since the end of 2021, Lucid’s share count has increased dramatically, from 1.65 billion to nearly 2.3 billion, primarily due to equity raises to fund operations.
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The company’s outstanding shares have also grown 25.67% year-over-year, which could continue.
Investorplace noted a notable gap between the number of vehicles Lucid produces and the number of successfully delivered cars to customers. This was evident in their first-quarter performance, where they produced 2,314 vehicles but only delivered 1,406.
The company’s current balance sheet is fairly strong, but its negative free cash flow of $3.07 billion over the last twelve months, around 90% of its cash and cash equivalents on its balance sheet, should signal alarm bells.
Workhorse Group (WKHS)
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Workhorse Group (NASDAQ:WKHS) has been actively diluting its shares to raise capital. The company announced a $50 million share sale and offered Green Senior secured convertible notes and additional shares via warrants.
The company secured up to $139 million through such arrangements to support its operations. WKHS’s involvement in securities litigation led to a substantial settlement involving cash and stock payouts totaling $35 million.
Shares outstanding for WKHS have increased over 30% year over year, while its cash burn issues remain persistent.
Due to these factors, WKHS could be six feet under. Given that its stock price has slid 81.46% over the past year, it seems likely that many investors feel the same way as well.
Canoo (GOEV)
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Canoo (NASDAQ:GOEV) has faced numerous challenges, including rapid share price declines and operational setbacks. The company has raised concerns about its ability to continue as a going concern, indicative of significant financial distress.
Canoo reported a meager revenue of $886,000, overshadowed by substantial operational losses of $302.62 million for the year. Despite improving from a larger loss in 2022, this figure still reflects deep financial troubles.
At the end of 2023, Canoo had only $6.39 million in cash and cash equivalents, with quarterly cash outflows expected to be substantial.
Furthermore, Canoo’s attempt to stabilize its financial position through initiatives like the Foreign Trade Zone approval for its Oklahoma City facility shows its efforts to improve profitability and reduce costs. However, these efforts may seem unlikely to do much to turn its fortunes around.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Matthew started writing coverage of the financial markets during the crypto boom of 2017 and was also a team member of several fintech startups. He then started writing about Australian and U.S. equities for various publications. His work has appeared in MarketBeat, FXStreet, Cryptoslate, Seeking Alpha, and the New Scientist magazine, among others.
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