One of the most pronounced beneficiaries of the meme trading phenomenon, electric vehicle manufacturer Faraday Future (NASDAQ:FFIE) saw its shares soar around 2,200% in the trailing month. However, prior to the surge, FFIE stock had traded well below the minimum price requirement to stay listed. While Faraday enjoys demand from bullish speculators, that may not be enough to overcome current challenges.
At the end of December 2023, Faraday announced that it received a letter from the Nasdaq that stated FFIE stock had closed below $1 per share in the previous 30 consecutive business days. As a result, the EV maker failed to comply with the $1 minimum bid price requirement. Faraday has until June 25, 2024 to regain compliance. To do so, its stock needs to trade above $1 for 10 consecutive trading days.
Further, the company received notice on April 24 that its stock had a closing bid price of 10 cents or less for 10 consecutive trading days. Because it violated this second rule governing low-priced securities, Nasdaq’s Listing Qualifications Department triggered a delisting determination.
Faraday said at the end of April that it planned to appeal the delisting decision and address outstanding deficiencies, including filing its delayed 10-K for 2023.
Short Squeeze for FFIE Stock Runs Against a Constrained Market
Up until recently, compliance seemed like a foregone conclusion thanks to meme traders. On May 20, FFIE stock closed at $1.80. Remarkably, one week earlier, shares traded hands for around 6 cents. Unfortunately, the issue right now is that shares are in a freefall. In the past five sessions, Faraday lost about 40% of market value.
At time of writing, FFIE stock sits at around $1.18 per share. While it’s above the $1 threshold, Faraday only has a month left to prove sustainability at this price. Investors also await other details relating to its delisting appeal.
In theory, FFIE stock could have another good run to keep it clear of the danger zone. According to Fintel, the EV maker’s short interest stands at 31.45% of its float. Naturally, such a high ratio can create a positive feedback loop to panic out the bears, thereby fueling upside pressure.
At the same time, the short ratio is only 0.22 days to cover. Essentially, the bears can quickly exit their short positions, making it difficult for the bulls to trap them.
Fundamentally, the other problem is the constrained EV market. With sector demand falling, many legacy automakers have hit the brakes on their electrification strategies. With Faraday selling its vehicles for over $300,000, the company may be in a precarious position.
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On the date of publication, Josh Enomoto did not have (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.
