There are some things that happen on Wall Street that you just can't afford to ignore. Canoo (GOEV 0.37%) has just done one such thing, with a few other troubling facts adding to the risk profile. When you see how much money investors have lost, it should be clear that this is not a good long-term investment for most people.
Throwing money away
Electric vehicles (EVs) are an increasingly important part of the auto sector, and that isn't likely to change anytime soon. In the early days, as with most new industries, it seemed like there was a huge open opportunity for new companies to jump into the space. As the major automakers have started to more aggressively build EVs, that opportunity has quickly narrowed. This is typical in the business world, with a lot of companies jumping on an idea that can really only support a small number of success stories. Given the reach and scale of combustion engine car makers, it probably wasn't realistic to believe that more than a couple of electric upstarts could compete long term.
Image source: Getty Images.
That's the quick, and simplified, background for Canoo's story. If you had invested $1,000 when this EV company completed its special purpose acquisition company (SPAC) merger in late 2020, you would now have a bit less than $40. No, that's not a typo. On a percentage basis, the stock is down 96% or so in less than three years.
That is an epic decline and a massive destruction of shareholder wealth. It is notable that the company has not generated revenues since it came public, has lost money consistently, and has been bleeding cash as it has attempted to build its business. Note that the chart below includes revenues (which you'll see in the key at the top), but there just aren't any to report, so there's no revenue line on the graph.
GOEV Revenue (Quarterly) data by YCharts.
The trends here are clearly very bad. In fact, at the end of 2022, the company noted that it had roughly $37 million in cash but needed to spend $55 million to $70 million on operating expenses and $30 million to $45 million on capital expenditures. That math just doesn't work and, when the company sent its 2022 10-K to the Securities and Exchange Commission (SEC), it highlighted just how high the risk is here for investors.
Believe them!
When a company reports to the SEC, it must take a good look at its business and decide whether or not it can, well, remain in business. For most companies, the answer is a quick yes, but for some the answer is a worrying no. Canoo is in the no camp, having issued what is known as a "going concern" notice. It reads like this:
Our management has performed an analysis of our ability to continue as a going concern and has identified substantial doubt about our ability to continue as a going concern. If we are unable to obtain sufficient additional funding or do not have access to additional capital, we will be unable to execute our business plans and could be required to terminate or significantly curtail our operations.
Companies do not make a statement like that on a whim and, in fact, will do just about anything they can to avoid having to add a going concern statement to their financial results. Investors should take this statement very seriously when it shows up.
Regardless of what the opportunity looked like when the company came public, Canoo is at very real risk of going bankrupt today. Even if it finds additional sources of cash to fund its business in the short term, that may not be enough to keep it afloat for very long. And that helps explain the shocking stock price decline.
A risk to avoid
Some investors may see Canoo's low stock price and think it's worth betting on a price rebound since the stock is so cheap. Given just the revenue, earnings, and cash-flow trends, that's probably not a good idea. But when you add in the fact that Canoo's management team is, literally, warning investors that it may go bankrupt, buying the stock is nothing more than rank speculation. Putting money into Canoo today is more than likely going to turn out to be throwing good money after bad, given the already-painful destruction of capital that's taken place.
