Whether the day remains this way or not, I have no idea, but the start to my electric vehicle watchlist on Wednesday morning was pretty ugly.
I don't expect these names to roll over and die. They've rewarded dip-buying far too much for investors to simply give up, but we may see the bounces come a bit more selectively as we move forward. In fact, I doubt today is the day to be selling, buying puts, or shorting. That happened a few days ago when I was waving flags of caution as QuantumScape (QS) traded about $50. With shares now trading between $28 and $32 today, the 40% pullback should bring in some swing traders.
What we have seen, in addition to the pullbacks, are management teams taking advantage of the huge moves higher. Despite retracements of 20% to 50% on this group, many are still up by 50% or 100% from recent levels. I don't blame companies for hitting the market with secondaries. They should. For those disappointed by that move, I get it. The quandary between managing a company and managing a stock is very real.
If you're the CEO or COO of a company that just watched their stock rise between 100% and 500%, it may not matter how much long-term faith or belief you have in your business plan, cash is king. If you can strengthen your balance sheet and increase your probability of long-term success at the price of a short-term hit on your stock, you do it.
The fact is made easier if you understand the market has priced in multiple years of growth and/or best-case business scenario. When examining recent pricing of the deals like we saw for Ayro (AYRO) , Ballard Power (BLDP) , and FuelCell Energy (FCEL) one might begin to realize just how much the market maybe overpriced the valuations as those companies were willing to take huge discounts to raise cash. FCEL even had $100 million in sales from insiders on their registration at a major discount. The stock closed at $9.05 but priced its 34.518 million share offering at $6.50. That's a 28% haircut overnight and a 40% discount to Monday's highs.
The good news for those looking to buy the dip is the offerings will slow as the stocks drop. We did see Li Auto (LI) register 47 million shares in an effort to raise $1.5 billion. If we see much of a discount there, I'd be interested in it.
The offerings haven't been limited to EV. Recent IPO, ZoomInfo (ZI) is selling 12.5 million shares at $45 despite raising nearly a billion dollars in June. JetBlue (JBLU) , following in the footsteps of a few other airlines is burning, I mean, raising $500 million. In all seriousness though, I'd rather see airlines issuing shares than taking a bailout.
The takeaway for me is the small and mid-sized companies that continue to see their stocks run and the market flush with cash should and will hit the market for secondaries every chance they have. In the end, executives need to manage the business first and the stock second. Yes, they work for shareholders, but those shareholders own a business, therefore, executives still must focus on the business first.
For some of these small companies, especially in the EV sector, the difference between survival and failure may very well be the cash raised here at the end of 2020 and in early 2021.