Lordstown shares plunge after warning on financial position: time to sell?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his spare time,… read more.
on Jun 9, 2021
  • Lordstown Motors on Tuesday issued a warning on its current financial position.
  • The electric truck manufacturer said it is struggling to secure funding for the manufacture of EVs.
  • Shares plunged 16.3% before falling 5.7% further during after-hours trading. Time to sell?

Electric truck maker Lordstown Motors Corp (NASDAQ:RIDE) shares on Tuesday plummeted more than 16% before falling further 5.7% during after-hours trading. RIDE stock on Wednesday morning slid 10.87% from Tuesday’s close in the pre-market session. Lordstown has more than 51% in market value this year. 

The company finalized a public listing via a special-purpose acquisition company (SPAC) in October last year. RIDE gained more than 206% between July and September. It surged to retest those highs in February this year.

Why it may not be too late to sell

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Lordstown is yet to start turning profits, and this is a worry for any company. RIDE reported a first-quarter loss of $125 million or -$0.72 per share, which missed analyst expectations by 157%. The company has raised concerns regarding the availability of funds for its electric truck project. Lordstown said in a filing with the SEC,

The company believes that its current level of cash and cash equivalents are not sufficient to fund commercial-scale production and the launch of the sale of such vehicles

RIDE’s target market is quickly becoming crowded. Several automakers have expanded their operations into manufacturing electric vehicles. Some of the companies involved have vast financial resources that give them flexibility. Therefore, as RIDE continues to struggle for funding, it makes sense why investors may want to exit their positions. Lordstown’s financial warning as a going concern is worrying.

Source – TradingView

Technical overview

Technically, Lordstown shares appear to have recently spiked to trade at a new 2-month high. Tuesday’s pullback pegged it back closer to $10.00 per share. RIDE stock trades significantly higher than its current 52-week low of $6.69, which means it could fall further.

Investors looking to short RIDE shares can target profits at around $6.79. On the other hand, those hoping for a rebound can target profits at the unlikely $15.75 resistance level. Looking at Wednesday morning’s decline, the momentum seems to be with the bears.

Bottom line: You could short RIDE shares to trim losses in long positions

In summary, if your position on RIDE shares is already out of the money, it could be beneficial to open a short trade to cover your losses. The current decline seems set to continue unless a financier comes through for Lordstown. Often, financial warnings are the beginning of a collapse of companies, and Lordstown has already said it doubts if it will continue as a going concern for the next 12 months.

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