Canoo (NASDAQ:NASDAQ:GOEV) is currently my favorite cheap EV stocks under $5 to buy right now. The company has changed quite a bit over the last several months even though investors are pricing GOEV stock based on its previous cash liquidity concerns.
The most notable news is the massive 4,500 EV order coming from Walmart (WMT) that certainly piqued my interest.
Another positive sign was a 200,000 share insider buy at an average price of $2.99 from Canoo CEO, Tony Aquila.
In this article, I’ll cover the most important key points on why I’m bullish on GOEV stock over the long run.
Canoo is an EV maker based out of Bentonville, Arkansas that produces lifestyle, last-mile delivery, and pickup truck electric vehicles.
The company isn’t currently generating any revenue but plans to start producing EVs in early 2023. Canoo will produce its EVs in Arkansas and Oklahoma.
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Just like most EV SPACs, Canoo is just getting started and has a lot of potential to disrupt the legacy automotive market.
A few months ago, Canoo looked like it was on the verge of bankruptcy until Walmart place a massive EV order that caught everyone’s attention.
Walmart Order Details
On July 11th, 2022, Walmart entered an agreement with Canoo to purchase 4,500 last-mile delivery vans with an option to purchase an additional 5,500 EVs.
Walmart already paid $300 million in advance for the initial EV order to boost Canoo’s balance sheet and give the company enough cash to fund production.
Also, Canoo issued Walmart a warrant for 61.2 million shares at an exercise price of $2.15 per share. This is a huge bullish sign, and I wouldn’t be surprised if Walmart exercised these warrants to own a stake in the company.
Amazon owns an $11.5 billion stake in Rivian (RIVN) and it makes sense that Walmart would own a major stake in Canoo to mimic Amazon’s Rivian investment.
Without the Walmart Order, I highly doubt Canoo would have avoided bankruptcy due to its shaky financial situation.
However, I believe Canoo management made a smart move by moving the company headquarters to Bentonville, Arkansas (the same city that Walmart was founded in) to get closer to a key potential customer.
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This is a huge milestone for not only Canoo but the entire EV industry because Walmart is the largest employer in the United States.
The EV movement slowed down a bit due to inflation concerns and a US recession, but major corporations continue laying down the groundwork for the inevitable transition in the future.
My Bullish Thesis
GOEV shares once traded at $10 after the SPAC IPO closed and now are down 62% over the last year.
Canoo’s market cap is around $800 million, making this a small-cap EV stock with lots of potential.
The Walmart order and 61.2 million shares via warrants is a major buy signal in my opinion.
Walmart already prepaid for its 4,500 EVs, which gives Canoo quick access to $300 million in revenue upfront. The $200 million at-the-market offering also frees up a lot more cash.
Capital expenditures were $65.4 million for the first 6 months of 2022.
The company only has $33 million on its balance sheet as of Q2 2022, but the Walmart prepayment and at-the-market offering mean Canoo can remain in business at least up until 2024.
New partnerships with the US Army and NASA add to Canoo’s legitimacy as a future EV leader. However, GOEV stock has been crushed along with the entire EV industry lately.
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Higher interest rates hurt growth stocks, but I think $2.15 is a solid price floor for GOEV shares. Canoo would be valued at a ~$600 Million market cap at $2.15, which is much closer to its 70 cents book value per share.
If Walmart orders the additional 5,550 EVs, then the entire order value will be worth $666 million. That would be more than the entire market cap if GOEV stock falls closer to $2.
GOEV stock is a super long-term hold that could pay off massively if other companies follow Walmart and order more vehicles.
Again, the Walmart order reduces a lot of risk in my opinion, but there are several other factors to be concerned about.
- On August 8th, 2022, Canoo announced an at-the-market offering for up to $200 million in common stock. Further dilution could hit GOEV shares in the short term and send the stock trending lower.
- Another risk factor is that Walmart may decline to purchase the additional 5,500 EVs, which would worry investors and hurt Canoo’s cash flow.
- Right now, no other EV or legacy automaker designs vehicles like Canoo, but companies may copy their unique design in the future.
- Canoo ended Q2 2022 with $33 million in cash and over $209 million in liabilities. The company’s negative $429 million in cash flow is unsustainable, and future at-the-market offerings may be needed to stay in business.
Canoo’s biggest problem right now is cash flow and staying in business. I believe they can make it with the help of Walmart, which is why I’m placing a buy signal on the stock.
What I like about Canoo is that its EVs are much bigger than traditional sedans or trucks. You have a lot more space for doing other activities such as studying, working, camping, etc.
It will be interesting to see if other EV companies copy their design, which could hurt future revenue growth in the long run.
GOEV stock has taken a beating, but that’s expected due to its overall market.
If you believe in Walmart’s influence, then GOEV stock is worth a gamble at these current depressed prices.