So far this month, Mullen Automotive (NASDAQ:MULN) has popped back on the radars of many investors. A big reason for this is several major developments directly related to MULN stock.
These include announced progress with some of the early-stage electric vehicle maker’s growth efforts. A reverse-stock split, which will enable Mullen to keep its Nasdaq market listing, has been another major news item regarding the stock as well.
While it may seem like things are changing for the better with MULN, you don’t have to look far to realize that is not the case.
By-and-large, it’s the same sad story here, with this risky penny stock. Progress notwithstanding, the key factor behind this stock’s multi-year track record of destroying shareholder value has not gone away.
With this, avoiding this stock remains your best move, as I’ll explain further below.
The Latest News on MULN Stock
It may be the dog days of summer, but Mullen Automotive is experiencing a busy August, based upon the aforementioned recent developments. While the impact of the reverse stock split (a temporary spike in price for shares) has come and gone, I can see why some investors perceive some of the other latest Mullen news to bode well for the stock moving forward.
For instance, Mullen’s announcement that it has commenced vehicle production at its Tunica, Mississippi assembly plant. In the coming months, the company intends to ramp up production of its Mullen Three Class 3 EV truck at this facility, expecting to reach full production capacity by year’s end.
In addition, Mullen Automotive later this month plans to kick off its “Strikingly Different” promotional tour of its planned Mullen Five EV crossover for the passenger vehicle market. However, alongside this seemingly good news for MULN stock, there has been some bad news as well.
Besides the reporting of horrendous fiscal results (more below), other updates from the company suggest that shareholder dilution, which by the way is the “key factor” behind shareholder value destruction that I hinted at above, will continue to persist.
There’s No Escaping This Spiral
Since November 2021, MULN stock has declined from a split-adjusted $3,363.75 per share, to just under $1 per share today. Forget about shares declining by 99%, or even 99.9%.
This represents a price decline of 99.97%. $1000 invested in MULN less than two years ago today would be worth around 30 cents per share today.
If you believe this near-total loss means little downside, high upside, think otherwise. At least, given that still no end in sight for the dilution spiral causing shares to decline that sharply.
As I have argued in past coverage of Mullen, to finance its expansion efforts, chances are the company will keep issuing new shares/new convertible securities to raise additional funds.
Much of this cash is going towards absorbing high operating losses, such as those reported last quarter ($53.8 million). The likely result of further capital raising is an increase in the outstanding share count, with little in the way of increased underlying value to show for it.
Hence, the watering down effect on MULN will continue. While there’s another factor that may sound like it could mitigate this dilution issue, I wouldn’t count on it.
Bottom Line: Still Likely to End in Tears
Yes, as a possible counter for its past shareholder dilution, Mullen Automotive has authorized a stock buyback program. Between now and Dec. 31, 2023, the company says it may repurchase up to $25 million worth of outstanding MULN shares.
However, “may” is the key word here. As Louis Navellier and the InvestorPlace Research Team pointed out, when critiquing the buyback plan back in July, the company itself has stated that it is under zero obligation to actually repurchase $25 million in stock.
Instead, Mullen could end up using just a small amount of this maximum amount, with possible future dilution likely to far outweigh its impact. Weighing the recent good against the consistent bad, there’s only one conclusion.
With little indication that shares will soon break free out of their downward spiral, it is still likely that an investment in MULN stock will end in tears.
On the date of publication, Thomas Niel 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.
