What happened
Shares of Lordstown Motors (RIDE -2.75%) popped 32.7% last month, according to S&P Global Market Intelligence. The electric vehicle start-up posted a disappointing earnings report at the end of February, which caused the stock to drop in the first week of March. However, with the broad recovery in growth stocks and a slight resurgence in meme stocks, Lordstown stock soared in the last few weeks of the month.
So what
On Feb. 28, Lordstown released its fourth-quarter and full-year 2021 financial results. The company has not yet delivered a vehicle to customers, so it has zero revenue. It also burned over $600 million in 2021, and only has $244 million in cash on hand. A combination of high cash burn and a small cash balance is usually not a recipe for success.
Image source: Getty Images.
Management expects Lordstown to sell approximately 500 vehicles in 2022 and 2,500 units in 2023. Most car manufacturers are unable to achieve profitability until they reach hundreds of thousands of vehicles sold a year, so Lordstown is likely still a long way off from even reaching breakeven financially.
Lordstown stock tanked as much as 28% on the last day of February after the report was released. In the first week of March, Lordstown stock continued to drop in conjunction with the broad market decline and investor pessimism about the company. But then, in the last couple of weeks, things started to turn around. Growth stocks hit a bottom (at least for now), and electric vehicle stocks like Tesla shot up 30% or more in a short time period. Lordstown was one of these companies.
We also shouldn't forget meme stocks like AMC Entertainment Holdings and Gamestop, which are both up over 30% in the last month or so. Lordstown was a part of the meme stock craze in early 2021, so it is possible that traders decided to drive up the price along with AMC and Gamestop in March.
Now what
Did Lordstown's business improve by 30% or more in the last few weeks? No, not in the slightest. The company is still hemorrhaging money, has a huge way to go in growing its manufacturing base, and had a scathing short report released last March with many questions still unresolved.
Don't get caught up in the short-term momentum with Lordstown stock. This is a risky investment that will likely not turn out well for investors over the next few years, and should be avoided no matter how high or low the price goes.
