What happened
Pity investors in Canoo (NASDAQ: GOEV) stock -- they just can't seem to catch a break.
Last week, shares of the electric vehicle start-up sold off after reporting a smaller-than-expected loss but continued cash burn, despite efforts to raise cash through equity sales and debt offerings. Today, Canoo shares are down once more -- 3.4% through 1 p.m. ET -- despite the company just receiving a new buy rating from wealth management firm Alliance Global Partners.
So what
Alliance Global initiated coverage of Canoo this morning with a buy rating and a $1.55 price target that implies the analyst thinks Canoo stock will triple in value over the next 12 months. So why aren't investors more excited about the news?
After all, according to the analyst, Canoo's growing production capacity and large order book, along with a "unique modular design" that distinguishes the company from competitors, are all points in its favor. Earlier this month, Canoo confirmed that its order book is worth at least $2.8 billion, representing orders for in excess of 60,000 vehicles. Management expects to have capacity sufficient to build 20,000 Canoo EVs by the end of this year, and 40,000 by the end of next year.
Thus, it would appear that the company has a full tank of orders to fulfill, and production capacity sufficient to complete all of the orders it has already collected by the end of 2024.
Now what
And yet, as I pointed out earlier this month, Canoo also has some problems. Expanding production capacity is all well and good (and even necessary, in order to fulfill the orders), but it's also costing Canoo a lot of cash. At current run rates, the company is burning through more than $80 million per quarter. But at last report, Canoo had barely $61 million in cash available to it.
And right there's the issue: Long term, things look promising for Canoo. Short term, though, Canoo could very well end up running out of money before it's able to make its long-term promise a reality. This, in a nutshell, is Canoo's big problem -- and probably a big part of the reason why investors aren't reacting to Canoo's upgrade quite the way Alliance Global was probably hoping they'd react.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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