I can understand why many speculators remain interested in taking a chance with Mullen Automotive (NASDAQ:MULN) stock.
Given the high levels of negative sentiment surrounding MULN stock, admittedly, it may not take much to shift said sentiment back to bullishness.
Such a shift could lead to a big move higher for this risky electric vehicle stock. However, while there are situations where the market either has it all wrong, or is overreacting to the facts, that is clearly not the case here with Mullen.
Sure, with the company continues to tout its progress via press releases, suggesting this EV contender is making progress with its goal of becoming a major name in this fast-growing industry.
These developments notwithstanding, investors are not arbitrarily exiting from positions in MULN. As has been the case for quite some time, they are doing so for a good reason.
| MULN | Mullen Automotive | $0.33 |
MULN Stock: Falling Downwards EVs Pop
Look at recent announcements from Mullen Automotive, and you may get the impression that this is a misunderstood company. Since the start of May, Mullen has issued fifteen press releases to convey to the investing public that it is still charging ahead.
Through updates regarding its efforts to produce and sell commercial EVs, as well as updates regarding the formation of new partnerships to bring other EV offerings to market, the company wants to convince you it is on the verge of achieving its big “liftoff moment.”
The hope is that it will lead to a comeback for MULN stock.
Still, despite these efforts to sway the hearts and minds of Mr. Market, it just isn’t working. During this same timeframe, MULN has tumbled, from a split-adjusted $2.08 per share at the market open on May 1, to 39 cents per share today, or around a 81.25% price decline.
To some, this may seem like one of the largest market disconnects ever, but make no mistake. Again, there is a rational reason behind this recent price action, and it all has to do with recent developments the company has not touted to the public.
The Reason for This Disconnect
Mullen may be cherry-picking the positives and placing them in the spotlight, but behind the scenes, this company is contending with a major challenge: a constant need to continue raising cash, in order to stay in business. Previously, Mullen had little issue keeping its head above water.
Not from consistent positive operating cash flow, mind you. Instead, as a Bloomberg commentator detailed back in January, due to retail investor appetite for MULN stock.
With this, Mullen’s backers were willing to keep on providing financing, in exchange for convertible securities and warrants that enabled them to cash out at a profit, while severely diluting shareholders overall.
However, as I pointed out recently, this pool of seemingly-endless capital may be running dry. With retail enthusiasm for the stock declining sharply, long-time backers are now far less willing to provide further financing. That’s why MULN has cratered over the past month-and-a-half.
Prior big declines for Mullen came about from the aforementioned dilution and waning of interest by everyday investors.
However, the main driver of more recent price declines is rising concerns that this company is a short drive away from the stock market scrapyard. Those bailing out today are wisely cutting their losses.
Bottom Line
There is a time and place to go contrarian. In certain situations, bottom-fishing in a stock unpopular with investors for the wrong reasons can produce outsized returns.
In the case of Mullen, however, there’s a clear cut takeaway: don’t try to catch this falling knife.
The company may have bold dreams of not just becoming a major producer of commercial electric EVs, but with its proposed Mullen Five passenger EV, a competitor to the likes of Tesla (NASDAQ:TSLA) as well.
Yet before this would-be EV contender comes even close to ramping up production and expanding its EV offerings, chances are its “game over” moment will arrive.
Hence, don’t count on hitting a big score going against the grain with MULN. Instead, count on experiencing heavy losses and heavier regret.
MULN stock earns an F rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.