The Bottom Is In For Mullen Automotive

Key Points

• Mullen Automotive guided for production and ramping revenue to begin this quarter. 
• The company's cash position and undervalued stock led to a substantial share repurchase plan. 
• Short-sellers remain active and a substantial short-squeeze could still be in play. 

Shares of Mullen Automotive are up more than 150% in under 24 hours on a series of news that amounts to 1 thing: Mullen Automotive’s ability to continue as a going concern appears to be without question. The caveat is that short sellers remain committed to their side of the trade and are selling into the rally.

This means investors should be prepared for volatility and a possible top to the market. Short interest was relatively high at 16% ahead of the news, and the data from Fintel indicates active short selling is ongoing. Not only was the number of shares available to short ample, but short-sellers kept selling them, and the off-exchange short-volume ratio remained above 50%.

Mullen Automotive Announces $25 Million Repurchase Authorization

Mullen Automotive occasionally issues dribbles of good news, so it was no surprise to see the press release announcing revenue for the current quarter. The revenue would come from selling 22 vans to Randy Marion Auto Group. The sale is good news but nothing on its own until you consider what follows. That includes production guidance for this year and next which points to revenue starting now and then ramping through the end of the year and the end of 2024. That alone is enough or should have been enough, to get the market moving, but there was more. 

When added to the company’s cash position, the revenue outlook suggests Mullen Automotive can continue without additional dilution of shareholder value, at least for now. The impacts of the dilution that has already occurred are not fully felt. Still, the plans for another reverse stock split may be unnecessary, and there is a moratorium on new financing until the end of 2023. With those factors out of the picture, the stock price's headwinds are diminished, opening the door for Mullen’s next move—the share repurchase. 

Mullen Automotive’s board of directors authorized share repurchases for $25 million. That’s not a lot to be sure, but for Mullen, a penny stock that’s fallen nearly 100% under the weight of share dilution, it is an enormous amount, about 50% of the market cap. Before the release, the company’s market cap was only $50 million, lending credence to CEO David Michery’s claims the stock is undervalued. Not counting the assets, including 2 unencumbered manufacturing facilities, Mullen has over $300 million and a healthy pipeline of future orders. The company plans to use the money by the end of the year. 

The Mullen Short Squeeze 

The short sellers are still active, but a more substantial squeeze could be in play. The company hired attorney Christian Attar to prosecute potential naked short-selling and short-selling fraud because CEO David Michery believes the company is the target of such schemes. Mr. Attar and his firm have investigated and prosecuted securities fraud for over 20 years and are responsible for numerous successful cases, including Overstock.com. Overstock.com received millions in compensation from several prime brokerages. 

Shares of Mullen climbed more than 70% 2 days in a row, but the real story regarding the charts is the volume. The previous volume record only set recently was more than doubled and may get beaten again. This points to a highly active market that has traded the entire company more than once and more than twice in under 24 hours. If this continues and price action remains elevated or moves higher, the shorts should begin to exit the market for good. If the company follows through with evidence of production (expected to begin this month) and deliveries (could begin next month), the short-squeeze could accelerate. If not, this stock is heading back to the $0.10 range.