If you bought Mullen Automotive (NASDAQ:MULN) after its mid-January pullback, chances are you are sitting on moderate gains right now. Thanks to two factors, MULN stock has rallied from 28 cents to 38 cents per share, or by around 35.7%.
While a nice gain in such a short span of time, I can see you may want to let it ride. Given this stock’s propensity to make big moves on any news, and considering a possible upcoming event, it may seem as if shares in this early stage electric vehicle company have a shot of zooming above the $1 mark.
Then again, maybe not. Take a look at the company’s latest financials and there’s little to justify today’s prices, much less a significant move higher. Worse yet, on a longer timeframe, there is a very high chance shares fall significantly lower.
MULN Stock: To Hold or Not to Hold
A big factor in Mullen Automotive’s strong performance in recent weeks has been renewed frenzy about a possible short squeeze. Speculators have jumped in hoping they can drive one, resulting in an even sharper move higher for the stock.
Something else has also helped to boost MULN stock. As InvestorPlace Assistant Financial News Writer Eddie Pan wrote last week, the company’s much-awaited I-GO commercial delivery EV is just about to arrive in Ireland, according to Newgate Motor Group, I-GO’s exclusive dealer in the U.K. and Ireland.
On top of all this, another major needle-mover may be in store. That would be a reverse split of MULN, which has yet to be officially announced. Such a move seems likely, given Mullen’s need to get its stock price back above $1 per share to maintain its Nasdaq listing.
Although stock splits change nothing about a company’s fundamentals, the announcement of a split could be enough to drive another short-term frenzy for Mullen shares. With this, it makes sense why today, you may be mulling the question of whether to hold or not to hold the stock.
Again though, considering the risks, this alone may not be a reason to keep it.
The Case for Getting Out Now
Before you commit to holding MULN stock, keep in mind that it’s debatable whether shares have the ability to experience an epic breakout in price in the months ahead.
Unlike in 2021 or 2022, there’s much less speculation present in the market to drive a “to the moon” style short-squeeze rally. The same goes for a potential rally ahead of a reverse stock split. Burned many times last year, the pool of traders willing to dabble in this trade is also likely too small to drive a material move higher for Mullen.
Sure, these aren’t the only possible catalysts for MULN. Catalysts more connected to the company’s fundamentals could in theory emerge. Still, take a look at Mullen’s financials, and it’s more likely that the company-specific news sinks the stock.
As I have argued in past coverage, Mullen has many problems, and they’re likely to persist. These include high operating losses (nearly $97 million last fiscal year alone), undercapitalization, and a history of heavy shareholder dilution. Each of these issues make it very questionable whether this small-but-ambitious EV maker can even partially achieve its goals.
The Best Move to Make Is Clear
Mullen stock may have the ability to make a few more moderate moves higher in the near term. However, expect these to be temporary in nature.
On a longer timeframe, this stock will likely stay on a downward trajectory.
The fundamental problems with Mullen are currently taking a backseat to the aforementioned short-squeeze and reverse split catalysts.
As changing market conditions make it debatable whether either catalyst can play out, the risk vastly outweighs the reward. Before the many negatives become top of mind once again, the best move to make is clear. If you’re sitting on gains with MULN stock, consider now high time to cash out.
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.