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Ayro May Be the Right Stock For The Wrong Time

Friday, August 14, 2020 | Chris Markoch
Ayro May Be the Right Stock For The Wrong Time

When investors talk about an electric vehicle bubble, you hear names like Tesla (NASDAQ:TSLA), Nio (NYSE:NIO) and Nikola (NASDAQ:NKLA). And investors who are speculating in Ayro (NASDAQ:AYRO) would agree.  Despite being up at times, AYRO stock is down 15% for the year.

But in fairness, Ayro is not really comparable to full-size electric vehicles (EVs). Ayro is more like ElectraMeccanica Vehicles (NASDAQ:SOLO). And when I look at the two products, I see a similar situation. We’ve been here before and we’re being told this time it’s different.

Only this time, it may not actually be different. And as you consider as they release earnings on August 14, Ayro seems like a story we’ve heard before.

At first glance Ayro makes sense

There are times when I really like a company, but I don’t see it as a good investment. And that’s the sense I get with Ayro. The company is manufacturing one-person electric vehicles that can move individuals around a college or corporate campus, a vacation resort, or a hospital. You can envision many applications. Ayro certainly must have been doing the same when it first began to trade publicly in 2000.

And the company has early demand. In July Ayro announced it has received $584,000 in orders for its inaugural purpose-built EV hospitality truck solution. And the company also announced a partnership with Gallery Carts to launch “on-the-go” hospitality vehicles.

That’s the good news. The bad news is that the company generated just $1 million in revenue last year. For a company that’s been around for 20 years, that’s a long time to wait to see proof of concept.

So it’s fair to ask why the company is not seeing more demand?

The economy will dictate the company’s near-term fortunes

As I mentioned above, Ayro’s vehicles are designed for small “campus like” settings. Of course when people hear campus they first think of colleges and universities. But Ayro also lists corporate campuses, hotels, and even food and beverage companies as targets for its purpose-built vehicles.

And on the face of it, Ayro may indeed have the next great things. But the company wouldn’t be the first to offer the right product at the wrong time. Restaurants are struggling to keep their doors open. They’re not looking to make capital expenditures.

Hotels are struggling to get guests. Some colleges and universities won’t be welcoming students to campus this fall. And even the ones that are will have strict social distancing measures in place. Even hospitals have not been immune to budget cutting measures. It’s unlikely they will be looking to place large orders for Ayro’s products.

An economic recovery should help demand for Ayro products. But the prospects for AYRO stock won’t get better until there is real demand. And that simply does not exist at the moment.                                                                                              

Investors Should Look To the Cannabis Industry

The cannabis industry ran into a problem because cannabis companies put the cart before the horse. Companies like Canopy Growth (NYSE:CGC) and Aurora Cannabis (NYSE:ACB) were competing to see which one could be the largest grower. However, they quickly discovered that it didn’t matter if there was no supply to meet that demand.

AYRO stock moved higher in July on news that the company had completed construction on a factory in Austin, Texas. The company will let the company produce up to 600 EVs every month.

The company showing the ability to produce product at scale is important, but that won’t matter if demand isn’t there. And while it’s good to see that the company has orders, they need more.

Will AYRO stock be worth the wait?

Ayro just initiated a share offering and there has been strong demand for the company’s equity. The short-term future for AYRO stock comes down to what the company is able to do with the cash it receives.

According to Ayro, the addressable market for low-speed electric vehicles (LSEV) will reach $23.9 billion by 2026. And for investors the math is pretty simple. Even with just a small percent of that market share Ayro would have a significantly higher valuation than its $97.23 million market capitalization. But there’s a difference between a potential client making a sustainability pledge and a customer that acts on that pledge. In the current economic climate, that is unlikely.

As I see an infrastructure get built, I’m beginning to believe that electric vehicle will be commercially viable at scale. But right now, the company has a product that is still a luxury. A new administration may change the calculus. That’s a story for another day. But for right now, like cannabis stocks, investors waiting for the next new thing may have to wait longer than they think.

 

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Ayro (AYRO)0.0$2.90+9.0%N/AN/AN/AN/A
Electrameccanica Vehicles (SOLO)1.3$2.50-2.3%N/A-4.81Buy$4.00
Nikola (NKLA)0.0$19.05-9.9%N/AN/AHold$43.80
Tesla (TSLA)1.5$387.65+1.9%N/A1,009.51Hold$201.53
NIO (NIO)1.3$17.85-0.6%N/A-15.66Hold$12.28
Canopy Growth (CGC)1.3$14.32-1.9%N/A-3.50Hold$28.69
Aurora Cannabis (ACB)1.5$5.20+0.6%N/A-0.45Hold$14.03
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