VinFast stock analysis: VFS is growing fast but red flags remain

VinFast (NASDAQ: VFS) stock price has been in a strong freefall in the past few weeks as the recent rally faded. The shares plunged to a low of $15.93 on Thursday, ~83% below the highest level in August. 

Strong growth but concerns remain

VinFast share price came into the spotlight in August after the company went public in New York. The shares surged to a record high of $92.90, giving it a market cap of more than $200 billion. This made it one of the biggest automotive companies in the world.

The rally mirrored that of other companies that surged shortly after going public. The most notable ones were AMTD Idea and Rivian Automotive. In most cases, these gains have been short-lived.

As I wrote here, VinFast stock price rally was irrational in so many levers. For one, the company has limited experience in the electric vehicle manufacturing industry. It is also a player in a sector that is highly competitive and one that is showing signs of slowing down.

VinFast published its earnings on Thursday that revealed it was seeing strong growth.It delivered 9,535 EVs in the second quarter, a big increase from the 1,780 it sold in the same period in 2022. Its e-scooter sales rose slightly to 10,182.

VinFast ‘s revenue also jumped. It made over $334.6 million in revenue, a 131% YoY increase. Its gross margin came in at minus 34.1% while its net loss came in at over $526 million. It had just $67.3 million in cash and equivalents at the end of June.

Most importantly, VinFast said that it will deliver between 40k and 50k vehicles this year. It also aims to start selling its VF 9 vehicle in North America in 2024.

Is VinFast stock a good buy?

Therefore, these results revealed that VinFast is growing at a fast pace although this is coming from a low base. Nonetheless, there are a few concerns to remember. First, the company is still grossly overvalued. WeBull pegs its total market cap at over $36 billion, which is $16 billion higher than Rivian and $25 billion more than Lucid Motors.

Second, VinFast will continue burning cash for a while. As we have seen with many EV companies, the path to profitability takes time. And before that happens, most of them tend to be highly dilutive to existing shareholders. I suspect that VinFast will do the same in the next few quarters.

Third, VinFast stock price will likely continue falling because of the elevated losses, the price war in EVs, and the fact that the industry is becoming saturated. Competition has risen from standalone EV companies and traditional firms that are pivoting the sector.