Please ensure Javascript is enabled for purposes of website accessibility

Why Ehang Stock Is Down Today

By Lou Whiteman - Feb 22, 2021 at 4:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company's defense against allegations by a short-seller are failing to give the stock a boost on Monday.

What happened

EHang Holdings (EH 1.84%) had a difficult week last week, with the shares down more than 50% after the autonomous air taxi came under fire from a short-seller. The company on Monday attempted to refute the accusations against it, but the shares were still off by as much as 10% on the day.

EH Chart

EH data by YCharts

So what

Ehang is a Chinese company working to develop an electric, autonomous flying shuttle. The stock has caught fire of late, at one point up about 1,000% in less than three months but was sent plunging toward earth last week by a critical report from Wolfpack Research.

Wolfpack accused EHang of being "an elaborate stock promotion," arguing that the company's primary customer was not really interested in air taxis but rather has signed "sham sales contracts to benefit its investment stock price." EHang a day later refuted those allegations and promised to provide evidence to back up its position.

Illustration of flying air taxis.

Image source: Getty Images.

The company in a statement Monday provided details about its dealings with Shanghai Kunxiang Intelligent Technology, the customer at the center of the Wolfpack investigation. EHang said that Kunxiang " is only one of EHang's many customers and it is not a related party of EHang."

Kunxiang, according to EHang, represented just 24% of its $4.2 million in 2019 revenue and said more than 70% of that revenue has been collected. EHang also references a four-minute YouTube video uploaded on Feb. 22 that it says shows a Kunxiang trial flight over Turpan, China. The video, Ehang claims, demonstrates the customer is indeed interested in its aircraft.

Ehang says Kunxiang was not its largest customer in 2020 and is now "in the process of taking legal actions against Wolfpack Research for its malicious act and false allegations in order to protect the interests of the company and its shareholders."

Now what

So why is EHang down even after updating its defense? It's possible that the short report has at least temporarily taken the momentum out of this momentum stock or at least provided a reminder that what goes up can quickly go back down.

EHang, even after falling 67% in a single trading session last week, is still up 156% year to date, and the market values this nascent manufacturing company at more than $3 billion. That's rich even assuming everything Wolfpack said is incorrect.

Couple the valuation risk with the risk that Wolfpack is NOT incorrect, and it is understandable if some investors are now a bit more gun-shy about the stock than they were only a few weeks ago. Given the uncertainty, and the valuation, I'd advise watching this one play out from the sidelines.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

EHang Holdings Limited Stock Quote
EHang Holdings Limited
EH
$9.96 (1.84%) $0.18

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.