Happy Friday, friends! What a week it's been. Violence in the banks. A big Fed decision day (with crazy price action), and more.
I've got a stock to watch that I think is an interesting based on its potential to further weaken!
LiveWire is a former "blank check company" or SPAC that engages in the manufacturing of electric motorcycles. It was spun-off from Harley-Davidson, which owns about 74% of it.
That being said, we already know it's wise to be skeptical of any of these deSPACs. Many are running out of cash, some are facing bankruptcy, and others are being sued by shareholders over what has been alleged as deceptive marketing by the promoters and backers of these controversial investment instruments.
Regarding Harley-Davidson's prior electronic bike endeavors, Bloomberg's Hannah Elliot writes, "Harley had an EV before, also called LiveWire, which it made from 2019 to 2020. (Recalls and high pricing rather damped its reception.)"
LVWR itself has a rather bearish looking chart, which has bring below the EMA(8), yearly point of control, it's prior uptrend line, and in the Ichimoku cloud (without a trend. RSI is below 50, and seems to be fading. The stock does not have a high amount of short interest, and it has an extremely large float. So that should help to reduce the chance of any sort of upside squeeze event.
I would be looking for a retest of it's 2022 lows around $4.20 as the final price target of this move, and I would manage risk by closing the position if the stock closes above the yearly point of control or if the trade does not play out in two months. Their next earnings are May 31st, 2023.
This is a high beta stock so I will not use a large position size. I will also scale in over three or four trades to ensure that I don't try to outsmart the market. I don't like the options chain for this stock as there doesn't appear to be any meaningful trading, and spreads are rather wide.
The company appears to be losing money at an increasingly severe pace. They have deeply negative profit margins and operating cash flow, indicating that they are essentially a cash furnace that is likely to have to further dilute shareholders as they run low on the cash raised during their SPAC offering.
I believe that, like most SPACs, Livewire is likely to run into some problems with the sustainability of its business model. Particularly during an environment with increasingly difficult business conditions, a rising cost of capital, and more risk adverse investors.
An electronic motorcycle priced at nearly $23,000 is LiveWire's main product offering. During a time of discretionary spending falling and light vehicle sales are below pre-COVID trends, I believe that this company will have a hard time rebuilding its already tarnished reputation from Harley-Davidson's last attempt at an electronic motorcycle.
I also believe this will be a challenging environment for LiveWire to execute, particularly as the cost of funding a vehicle purchase has risen significantly in the last year at the same time that cost of living has surged. Leaving the potential audience to sell these bikes as potentially quite niche.
I don't believe that companies which struggle to profit will do well in this end cycle environment. LiveWire has a lot to prove to potential consumers, many of whom are already reducing their discretionary spending. LVWR stood out to me because of the convergence of a bearish technical picture and deteriorating fundamentals. I also believe that Harley-Davidson likely wanted to spin-off this company so that any negative impacts would be less meaningful to them directly.
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