Kandi Technologies Group (NASDAQ:KNDI) was one of last week's biggest losers. Shares of the Chinese electric-car maker and auto-sharing pioneer tumbled 19.7% on the week after it posted uninspiring quarterly results.
It may not have seemed like a bad report on the surface. Revenue soared 158% to $44.2 million over the prior year's third quarter, and Kandi's adjusted profit clocked in at $0.12 a share. Tesla Motors (NASDAQ: TSLA) -- the undeniable gold standard when it comes to electric vehicles -- posted an adjusted profit of $0.02 a share on a 55% year-over-year top-line gain.
There is no major analyst coverage on the fast-growing company, so it's not as if we can stack up Kandi's quarterly performance against Wall Street expectations. How can a 158% pop in revenue and an operating profit that has more than quadrupled fail to impress the market? It could very well be a "sell on the news" moment, since Kandi stock had soared 41% during the four previous weeks.
It was a busy few days leading up to Kandi's quarterly report. A week earlier it had announced an agreement to launch Alipay and Alipay Wallet digital payment options for its auto-sharing platform, getting Kandi on board with the digital wallet of choice in China. The week before that, it announced it would be delivering 1,000 cars by the end of December for a new car-sharing program in Chengdu, expanding its reach after helping get similar electric-vehicle hourly-rental programs off the ground in Shanghai and Hangzhou.
Earlier in October Kandi also revealed that its Cyclone model -- a more spacious four-seater -- is on track to hit the market in a few weeks. Factor in a couple of Investor's Business Daily articles that helped broaden awareness of Kandi's story and you have plenty of potent ingredients in the rally's recipe before it came undone last week.
Bouncing back will require debunking the growing number of skeptics. There were more than 7.9 million shares of Kandi sold short as of the end of October, nearly double the stake from a year earlier.
The shares have more than doubled over the past year, meaning that the value of the bearish wagers has actually quadrupled over the past year. One bone of contention for the bears is that Kandi's the subject of an SEC investigation. That in and of itself isn't a death sentence; there are many companies that have have fallen under the watchful eye of regulators that have gone on to thrive. However, as the product of a Chinese reverse merger, it will draw naysayers.
Working in Kandi's favor is that it has the right product at the right time. China's smog problem is universally lampooned, and the country has moved to offer subsidies and tax breaks to make going electric attractive. Some of the breaks favor homegrown companies, giving Kandi and its peers an advantage over Tesla and importers of cheaper plug-in electric cars.
China's also a country where auto ownership remains low. Morning commutes are loaded with bicyclists, pedestrians, and mass transit riders, opening the door for Kandi's auto-sharing platform as a way for folks to perform tasks including shopping, dating, and social outings more efficiently.
The challenges are there for Kandi, stemming from the way it went public seven years ago to the SEC investigation that presents itself today. However, the opportunities are there for the stock to keep moving higher if Kandi's vehicle sales and profitability continue to expand. Kandi is a risky investment, but that's often the case with story stocks in the early chapters.
Rick Munarriz owns shares of Ford and Kandi Technologies. The Motley Fool recommends Ford, Kandi Technologies, and Tesla Motors. The Motley Fool owns shares of Ford and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.