Is there any value left?

If a stock plunges far enough, some value hunters may feel there is nowhere else to go but higher prices. However, as long as Fisker (NYSE:FSR) stock price is above zero, there is still room for it to fall further.

Of course, there have been times when stocks have lost most of their value and then gained 2x, 5x, or even 10x. But for that to happen, the market’s judgment about the stock or company must be wrong somehow.

Whether the market is wrong to assign a very low valuation to Fisker remains to be seen, but the old phrase “it’s cheap for a reason” now seems to apply to FSR stock.

Remembering the good times

When an investment fails, it can lead to nostalgia for the hope that accompanied the buying impulse in the first place. For Fisker stock, taking it with a fist certainly made perfect sense in 2021, when easy money policies ruled the day and the electric vehicle market seemed like a wide-open field.

Then came non-temporary inflation, high borrowing costs, and a Darwinian shrinking of the EV industry. At the same time, Tesla (NASDAQ:TSLA) has made a series of price cuts that have put tremendous pressure on its EV competitors.

Even with these factors in mind, it’s difficult to understand the brutal decline in Fisker stock. Once trading above $29, the stock now sells for 13 to 14 cents, if you can believe it.

The problem wasn’t with Fisker’s vehicles, which were sleek, powerful and had industry-competitive range. Plus, Fisker isn’t one of those pre-revenue startups that often go bankrupt. In fact, Fisker’s revenue has actually grown over time.

But in the competitive EV market, having a cool vehicle and increasing profits isn’t enough. In late February, Fisker raised doubts about its ability to continue as a “going concern” (two of the scariest words on Wall Street).

That bombshell prompted the automaker to announce a 15% workforce reduction. It’s funny how while job cuts are sometimes well-received by investors, they can also be seen as an act of desperation. In this case, the layoffs were not well received and FSR’s stock price plummeted.

Moreover, Fisker admitted that despite the increase in sales, it had “insufficient” resources to cover the next 12 months. The carmaker has admitted it may have to cut production of its flagship Ocean electric SUV unless it secures additional funding.

Additionally, in Form 12b-25, Fisker indicated that it would be late filing its Form 10-K annual report for 2023. Clearly, additional time was needed to finalize the Company’s consolidated financial statements and finalize internal assessments. Controls financial reporting and related disclosures and completes reporting processes.”

But there was potential light at the end of the tunnel. According to Reuters, Fisker teased that it is “in talks with major automakers for potential investments and joint development partnerships.” It was soon revealed that the car manufacturer in question was Nissan (OTCMKTS:NSANY).

From bad to worse

Things didn’t get any better from there. The Wall Street Journal, citing “people familiar with the matter,” reported that Fisker had “hired a restructuring consultant to help with a possible bankruptcy filing.” Perhaps the only word scarier than “going concern” is “filing bankruptcy.”

You might remember how Fisker warned it might have to slow down production of the Ocean SUV. This wasn’t just an empty statement, as the company recently announced that it would stop producing vehicles for six weeks.

Fisker also announced a “financial commitment” consisting of the sale of up to $166.67 million worth of senior convertible notes. That’s fancy language for debt that Fisker must repay with interest, and don’t be surprised to learn that not all debt is going to be cheap in today’s high-interest rate environment.

More specifically, the company said, “The 2024 Notes will accrue interest at the three-month secured overnight lending rate plus 12% per annum, payable at maturity.” Additionally, Fisker “will pay interest at the rate of 3% per annum on overdue principal, interest installments and undrawn investment fees in excess of the interest rate applicable to the 2024 Notes.”

Therefore, it will be very important for the automaker to repay this debt in a timely manner if possible. Whether that will actually happen is one of the many unknown unknowns about Fisker, and investors are taking a big gamble even with the current low stock price.

As a result, a declining FSR stock may seem like a good value, but remember that the appearance of value is not the same as what it is actually worth.

disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.