When short sellers are targeting a stock, it can pay to approach that security with caution. Short sellers tend to be well-informed, high-conviction traders. If they’re betting against a company, there’s usually a very good reason they are doing so.
In this report, we are going to highlight some interesting short selling activity at Canoo Inc (GOEV:US). Canoo is an American electric vehicle start-up that is developing a range of minivans and pickup trucks. The company, which came to the market via a SPAC deal in 2020, expects to launch its first vehicle in 2022. It is listed on the NASDAQ Global Select Market and currently has a market capitalization of $1.95 billion.
Canoo Inc: Short Selling Activity
Looking at the short selling data on Canoo, we see several red flags. The first is that short interest is extremely high. Our data shows that, at present, 29.9 million Canoo shares are on loan. Canoo has a free float of around 99.2 million shares meaning that short interest is currently a high 30%.
The second red flag is that utilization is very high at 98.2%. Utilization is a measure of demand on the short side of the market. A reading of 98.2% tells us that demand for the stock from short sellers is very high right now.
Finally, the cost to borrow stock is also extremely high at present. Currently, it is 27.6%. This confirms that demand for the stock from short sellers is elevated right now.
Canoo’s recent updates have been relatively encouraging. In its first-quarter results, for example, the group said that it is on track for production in 2022 and to ramp up production to 15,000 units in 2023. During the quarter, the group expanded employee hubs to three facilities in strategic locations (California, Texas, and Michigan) and opened pre-orders for its Lifestyle Vehicle and Pickup Truck. As of 31 March, the company had cash and cash equivalents of $642 million on hand.
There are certainly some risks to the investment case, however. One is the stock’s valuation. A market capitalization of approximately $2 billion seems high for a company with no revenues and no sellable product.
A second risk is that the US Securities and Exchange Commission (SEC) has recently opened an investigation into the company. The investigation is in relation to the company’s SPAC deal as well as its operations, business model, revenues, revenue strategy, customer agreements, and earnings.
A third issue is that recently, the CEO, CFO, and Chief Lawyer have all resigned. This is concerning.
In light of the SEC investigation and the resignation of key employees, we see the short selling activity here as bearish. Given the high level of short interest, we think caution is warranted towards Canoo stock.