AMSC whet my appetite to short story stocks again, and then MXWL dropped in my lap. Both have a lot more downside to come. I am on a roll, I feel, and as such am on to bigger and greater things (stocks to short). I turn my attention to battery stocks generally and AONE specifically. I plan to bang away on this subject for some time to come, at least until AONE is closer to zero.
There is a whole bevy of eligible story stocks in the battery/electric vehicle space to short. The initial criteria to short one of these is that it does not make money and it needs additional cash. At the very least, an equity or convert offer tends to push a stock down while a failure to capture investor attention leads to the promised land of “a trip to zero.”
And don’t get me wrong – I am a believer in the idea that these things need to come to market. After all, this is how computer chips and software databases and innovative medicine are able to get the money needed to transition from a really cool idea to something you or I can touch and feel on a daily basis. Just remember that buying and selling these stocks AFTER they have appeared on an exchange means someone else provided the initial cash to get the companies and stocks to that point. As a trader, don’t delude yourself into thinking you are an investor.
The problem is that story stocks can be well defended by banks searching for deals that are also providing sell-side research. Look, the sell-side as a business really does not make much money. Take a look at the total silence (“Total Silence”? I crack myself up…) surrounding the TOT-SPWRA deal where it is obvious a series of banking deals are in the wings once the TOT tender is over. The associated banking business is what pays the salaries to support the lifestyle to which these analyst goofballs have become accustomed. The battery space as a whole and this stock in particular will need more money after this latest cash infusion is burned down. The only way to get said cash is through equity or convert offers. We all know how that goes with regard to sell-siders and the banking business.
Shorting risks aside, there is something perversely satisfying when successfully shorting these piggies.
By the way, today’s ultimate story stock is PANL. It will go to zero if Samsung does not buy the thing. Watch PANL get cut in half within 30secs when Samsung says it has found a way to manufacture OLEDs without PANL technology. For those PANL believers, take a look at how well ENER’s patents on phase change memory worked out despite the somewhat-adoption of the technology by Samsung, Elpida and MU (through its Numonyx acquisition).
I have chosen AONE as my next target. At this point I don’t know exactly how it will play out, but we will go through the process here. Besides the excessive valuation and inability to make money, I also like the fact that its recent secondary puts share count over 125mln, meaning AONE needs to put up some big-boy earnings to move the needle. Net debt could be higher, but capex and other cash burn push this in the right direction (up) as time goes on. What you want in these things is a spiral down. Too many shares outstanding limit the stock’s ability to appreciate, and too much debt blocks the ability to sell shares to clear the decks. Look at the spiral ESLR and ENER took when it became clear neither was going to make money and share count and debt became too high.
I would prefer AONE’s share price was higher as there really is something to the idea “there are more digits to zero” when shorting a stock, despite the fact that AONE’s market cap is almost a billion dollars.
The risk to shorting is that AONE finds an ability to make money. This is not inconceivable. Solar stocks levered up in a big way and continue to grow into their balance sheets, many now multi-billion dollar companies despite serving a “niche.” I have a personal view that hybrid and/or electric vehicles will not be more than a niche for at least the next decade, but that does not mean a company cannot make money in a niche market.
So we will take this in steps.
- electric vehicle background and industry risks
- requirements to successfully serve an electric vehicle market
- AONE’s ability to serve the electric vehicle market in the face of competition
The goal is to figure out when AONE runs out of cash. And no, we will not play the stupid game of arguing with AONE’s auditors. We will leave that bullshit for larger, better capitalized idiots.