Electric vehicle (EV) stocks are once again leading the markets higher today, with many of the top names in this high-growth sector seeing upside again. Early-stage EV company Faraday Future (NASDAQ:FFIE) is among the biggest gainers of this group at the time of this writing. Currently, FFIE stock is up about 8% as investors pile into various high-momentum EV stocks.
As InvestorPlace noted yesterday, the move in EV stocks appears to be driven by multiple factors. This week’s decision by the Federal Reserve to pause rate hikes (at least for now) has spurred interest in stocks more exposed to interest rate risk. Companies with expected earnings in future years may be discounted at more favorable levels. For unprofitable EV stocks like Faraday Future, that’s a great thing in terms of valuation.
Given Faraday’s low share price and relatively low market capitalization — around $550 million after today’s surge — speculators may also be taking a stab at playing the upside momentum among EV stocks as a whole by adding exposure to low-cost equities like FFIE stock. Let’s dive into whether this move is sustainable — and what investors should do from here.
Can the Rally in FFIE Stock Continue?
Faraday Future, like many pre-revenue EV companies, continues to burn through cash in its aim of designing, developing and ultimately selling EVs in the U.S. market. How long it will take the company to reach production — and what the company could potentially earn in revenue and eventual profits — remains highly uncertain. Thus, valuing a stock like FFIE is inherently difficult.
Accordingly, investors often take their cues for to how to value such companies based on how other EV stocks are moving. When the sector has momentum and the tide is rising, speculators and traders can make the most money by going further out on the risk curve. In this case, the low-cost options on FFIE stock, or one of its peers, may provide more near-term upside than other massive players in this space.
Of course, this strategy also comes with heightened risk. Personally, I’m not sure that the risk is worth the reward, given how long this rally has lasted — and how high many of these stocks have flown. But for investors intrigued by the EV sector, FFIE stock is certainly on the radar today.
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On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
