Faraday Future is up 33% last week! Is it time to buy?
πππ$Faraday Future Intelligent Electric Inc.(FFIE)$
It is unclear why Faraday Future share price has surged last week since it has not made any headlines during the week. As such it could just be a short squeeze considering Faraday Future is running out of cash.
A short squeeze is a situation in which the price of a stock rises to such an extent that investors who have sold short, had to purchase the stock in order to limit their losses, causing the price to rise further.
A short squeeze is also a rapid increase in the price of a stock due to an excess of short selling rather than underlying fundamentals.
Performance wise Faraday Future was down 3% last Friday but is up 33% in the past 5 days. Its share price is now down 78% year todate and a massive 99% in 2023.
Faraday Future has received a letter in January from Nasdaq that Faraday had failed to maintain a minimum bid price of at least USD 1 per share for the 30 consecutive trading period from November 9 23 to December 27 23. It is now at risk of being delisted if it does not comply.
As a result of this Faraday Future effected a 1 for 3 reverse split on March 1 2024. This is Faraday's 2nd reverse stock split within 5 months.
Faraday Future have only sold 11 FF91 vehicles between 2023 and 2024. Each vehicle is worth USD 300,000. Therefore it is not surprising that there are not many buyers.
On March 8 2024 , Faraday Future had to issue its first recall covering all 11 vehicles it built last year. The recall centers around a problem with the warning light for the airbags in Faraday Future's FF91 SUV.
This process could lead to substantial costs at a time when its cash burn is increasing and its cash on hand is dwindling. The most recent financial results showed that Faraday had USD 61.8 million in cash. This is minimal for a company that lost over USD 78 million in the last quarter.
Faraday Future faces an uncertain future unless it receives help from an external source. The lesson to be learnt is to be careful when shorting a stock. It also highlights the importance of appropriate position sizing, diversification and having an exit strategy when things do not go to plan.
Even though Faraday Future's share price has gone up 33% last week, I believe it is better to stay clear of the stock as it faces too many uncertainties. It is definitely not a Buy in my humble opinion.
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Modify on 2024-03-29 05:44
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- twiddlyΒ·03-25TOPMight be better to stay away for now.1Report