Should you buy Lordstown Motors shares as its sells a factory to Foxconn?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Sep 30, 2021
  • Lordstown Motors shares on Thursday surged 10% on reports it is selling its Ohio plant to Foxconn.
  • Sources familiar with the matter told Bloomberg the company is close to agreeing on a deal to sell.
  • Lordstown bought the highly politicised Ohio factory from General Motors in 2019.

On Thursday, Lordstown Motors Corp (NASDAQ:RIDE) surged 10% amid reports the company has agreed on a deal to sell its Ohio plant. Sources familiar with the matter told Bloomberg the company has sealed a deal with Foxconn Technology Co. Ltd (TAI:2354) to sell the highly politicised factory. 

Lordstown struck a deal with General Motors Co. (NYSE:GM) in 2019, to buy the plant started by the automobile manufacturer in 1966.

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If completed, the deal will give Lordstown the cash infusion it needs to continue as a going concern after warning investors in June. On the other hand, Foxconn will use the plant to implement its electric vehicles business strategy.

Lordstown and Foxconn did not comment on the matter.

Is Lordstown stock a buy?

From an investment perspective, Lordstown Motors is still a high-risk investment after issuing a going concern in June. And since none of the parties involved in the deal confirmed Thursday’s factory sale reports, it would be best to assume no deal has been struck yet.

In addition, with analysts expecting Lordstown bottom line to worsen by a whopping 114% this year before registering a recovery of 30% next year, it would be best to monitor the company’s performances and developments around the reported deal before buying the stock.

Source – TradingView

RIDE faces 100-day MA resistance

Technically, the RIDE stock seems to have recently spiked to trade at the 100-day moving average, where it faces solid resistance. Moreover, Lordstown shares also appear to have rallied to the overbought conditions of the 14-day RSI.

Therefore, a pullback seems inevitable, given the company’s weak fundamentals. As a result, investors can target downward profits at about $6.30 or lower at $4.79. 

On the other hand, if the stock price surges above the 100-day MA, it could find resistance at $9.68 or higher at $11.84.

It could be time to short RIDE

In summary, although Thursday’s factory sale reports triggered a spike in the RIDE stock price, there are no solid fundamentals to support a long-term rally. 

Moreover, since none of the parties involved confirmed the reports, it would be wise to monitor the situation before deciding to buy the stock.

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