The electric vehicle (EV) sector is struggling to recover from last month’s sell off. That’s especially the case for smaller EV plays, like Cenntro Electric (NASDAQ:CENN) stock.
Source: Cenntro Automotive
Crashing in January, CENN stock has continued to tumble so far in February, but while EV stocks were well due for a correction, Cenntro’s sell-off may have been overdone.
Still, this EV maker still has a lot to prove. Although it has projected billions in sales in a few year’s time, it’s wise to look at these numbers with a critical eye. Much like how you should view projections from the more established EV startups, like Lucid Group (NASDAQ:LCID).
Even so, in a field of vehicle electrification plays that are still too richly priced, this may be one worth rolling the dice on.
A Closer Look at CENN Stock
Cenntro’s stock price has been declining mainly as a result of the way it went public at the tail end of 2021. CENN stock came to be through a reverse merger with former penny stock favorite Naked Brand Group. The terms of the deal, possibly more favorable to the owners of then-privately held Cenntro, may have played a role.
A larger root cause may be the 1-for-15 reverse stock split Naked completed shortly before the deal closed. This adjusted its share price, moving it from sub-$1 per share level, up to just outside penny stock territory.
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In a recent article about another penny stock that may decide to do a reverse split, Sundial Growers (NASDAQ:SNDL), I discussed the two reasons doing one can put downward pressure on shares.
First, a higher stock price makes it much easier to short. Seeing this mostly as an over-hyped meme stock, the short-side may have piled on post-merger.
Second, some speculators, under the erroneous belief that a low-absolute price means high upside, bailed on it when it went from under $1 per share, to over $5 per share.
Given the key reason behind the drop in the price of CENN stock, it’s worth giving it a second look for several reasons.
For starters, per calculations from InvestorPlace colleague Mark Hake, it appears today to be trading at a low valuation. With around 261.3 million outstanding shares post-merger, it has a market capitalization of around $371.1 million. That’s super low, given both its high cash position (Naked Brands’ main contribution to the deal) of $282 million.
Also, unlike some other EV upstarts, Cenntro’s already in the commercialization stage. Last year, the company produced 1,623 of its electric commercial vehicles (ECVs).
This year, as its new Jacksonville, Fla. assembly plant comes online, it plans to ramp up production. Its delivery goals for 2022 and 2023 are 21,500 and 74,800, respectively, projected to generate $506 million in sales this year, and $2.1 billion next year.
In short, unlike with Lucid, Rivian (NASDAQ:RIVN) and other mainstream EV plays, instead of paying a high multiple to projected future revenue, investors can buy this stock at a valuation that’s a fraction of its projections.
Bottom Line: Consider Cenntro a Cautious Buy
Again, I wouldn’t view Cenntro Automotive to be a slam dunk situation. It may be wisely targeting a niche in the EV market (commercial vehicles for use in off-road and last-mile delivery applications). Still, there’s no guarantee it’ll hit five-digit delivery numbers this year, soaring to near six-figure numbers by next year.
Nevertheless, with its reverse merger/reverse stock split causing such a sharp slide in its share price, the price is right when it comes to taking a chance on it. If it fails to take off, it’ll likely continue its descent to lower prices. If it meets, or comes close to meeting expectations, though there may be room for it to make a big reversal.
A speculative EV play where the odds appear to be more in your favor, consider CENN stock a cautious buy.
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On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
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