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The Lion Electric Co.(LEV-N)

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Why Lion Electric Stock Roared Ahead 20% Today

Motley Fool - Tue Apr 18, 11:00AM CDT

What happened

Shares of Canadian electric bus manufacturer The Lion Electric Company(NYSE: LEV) roared 20.5% higher through 11:15 a.m. ET Tuesday morning after the company announced...not earnings, exactly, but the date on which it plans to release its Q4 earnings report.

Suffice it to say, I think investors may be jumping the gun on this one.

So what

In a press release this morning, Lion revealed that it plans to report fiscal Q1 2023 earnings results before markets open on May 9 -- about three weeks from now. These new results will therefore appear just two months after the company's powerful Q4 2022 report, which came out in March, and which showed Lion Electric more than doubling the number of electric buses it delivered year over year (to 174 vehicles), doubling its revenue as well, and...losing $4.6 million in the process.

That fact alone -- that growth seems to be no guarantee of results at Lion Electric -- should clue investors in that just because Lion will report earnings next month, that doesn't necessarily mean those earnings will be good. Indeed, after Lion Electric produced a full-year profit last year according to generally accepted accounting practices (GAAP), analysts polled by S&P Global Market Intelligence forecast a big $0.37-per-share loss for the company this year, followed by a $0.24-per-share loss next year, with profits finally turning positive again only in 2025.

If that's the way things are set to play out, a 20% jump in share price today may be an overreaction.

Now what

Granted, it's possible investors aren't focused so much on Lion Electric's results as they are on the momentum behind Lion Electric stock. Yesterday, shares of the bus maker stomped the accelerator for a 12% rise, spurred on by a company announcement that it has just opened a new 175,000-square foot factory for the production of batteries for medium- and heavy-duty electric vehicles.

On the plus side, completion of this project means Lion Electric won't need to burn through quite so much cash. (Forecasts are for capital spending of less than $70 million this year, versus $130 million last year.) On the minus side, though, Lion Electric will remain cash-flow negative even without the massive capital expenditures necessary for building its factory.

For an unprofitable company with more debt than cash on its balance sheet already, this is an uncomfortable position to be in. I fear that investors getting excited about Lion Electric today are going to end up being bitten.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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