Canoo (GOEV) stock price forecast: risk vs reward analysis
Canoo (NASDAQ: GOEV) stock price has staged a strong recovery in the past few weeks, outperforming the likes of Tesla, Rivian, and Lucid Motors. It has jumped by 157% from its lowest level this year while Tesla sits at its lowest level since January last year. Rivian has tumbled to its all-time low.
Canoo stock price has rebounded
Canoo’s shares have recovered after the company made some important developments. It has continued to receive orders for its electric vehicles. It recently signed a sales deal with the government of Saudi Arabia.
In addition to that order, Canoo has purchase agreements worth about $3 billion from the likes of Walmart, NASA, United States Postal Service (USPS), and Zeeba.
It also acquired manufacturing assets from Arrival, the collapsed British EV company. Also, the company received a foreign trade zone status in Oklahoma, helping it to save substantial sums of money.
And most recently, Canoo received a bullish call from analysts at Benchmark, who believe that it could jump to $5. The analyst noted that the company had orders worth over $3 billion. $750 million of these orders have been confirmed.
Canoo is different from other EV companies like Fisker and Lucid Motors in that it is not targeting the mass market. Instead, its vehicles are primarily in the commercial fleet market, an industry that is less competitive.
GOEV faces substantial risks ahead
However, Canoo faces significant risks ahead. The most important one is that it is running out of money at a time when it needs vast resources to scale its manufacturing process. In fact, it has already delivered a going concern warning to its investors.
The company’s balance sheet is not good as it completed the quarter with about $6.3 million in cash and cash equivalents and $3.9 million in restricted cash. These funds are not enough for a company that expects to have cash outflow of between $45 million and $75 million per quarter.
As a result, the company will need to raise money to fund its process. It received $45 million investment from a foreign investor, meaning that it could tap more money that way. It could also receive funding from the Biden administration, which has also funded Lithium Americas and Plug Power.
I think that the company could also use its confirmed orders to raise debt or convertible debt financing. At the most extreme, the company could sell shares to boost its balance sheet.
Either way, I believe that Canoo is a high-risk and high-reward investment. If it makes some positive progress, it could rebound and move to about $5. Alternatively, the stock could resume the bearish trajectory.
In this case, I am leaning on the latter after observing the performance of companies like Fisker and Lucid Motors. In this case, there is a likelihood that the GOEV stock price will resume the bearish trend and even retest its YTD low at $1.18. The alternative scenario is where it recovers and retests the YTD high of $4.78.
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