Is Facedrive (TSXV:FD) Stock the Next Target of Redditors?

Is Facedrive (TSXV:FD) stock the next target of Redditors? There is no other justification for its 280% jump and 15% slump.

Did you know Facedrive (TSXV:FD) stock has jumped almost fourfold in 40 days from $15.6 to $60? This means if you had invested $1,000 in this stock in December 2020, you would have $3,850 now. You may think I will tell you to buy this stock before it grows further. But I will suggest otherwise. The stock has outgrown its capacity, even after taking some of the most bullish estimates.

A few weeks back, I’d talked about BlackBerry’s 200% stock price rally in less than a month. There was no strong fundamental backing or insider information that could justify the stock rally. The only plausible explanation was a trading game where some traders are artificially inflating the stock price. Is this the case with Facedrive? Don’t you find the 123% rally in just one week overblown?

Why did Facedrive stock jump 123% in one week? 

Some analysts say that Facedrive’s 123% rally comes as the company launches electric vehicle (EV) subscription service Steer in Canada on March 1. Facedrive acquired the U.S.-based company Steer in September 2020 in return for its shares. It also secured a US$2 million strategic investment. The acquisition was pretty relevant, as it gave Facedrive entry into the U.S. market.

Then why didn’t Facedrive’s stock surge at the time of the acquisition, and why now? These days, Redditors are targeting unpopular stocks for a game of short squeeze. Hence, any sudden jump in stock price raises an alarm, as shorting is a fundamental investors’ nightmare. Facedrive’s stock is trading at 5,800 times its sales per share. This valuation is unrealistic, even for a high-growth stock.

A company that earns less than $1 million in annual revenue has reached a market capitalization of $4.7 billion. The first sign of the trading activity was visible today when Facedrive stock fell 15% at the opening bell. Hence, I recommend you to stay away from the stocks that soar to unrealistic levels.

What the fundamental investor thinks about Facedrive

After Facedrive’s unrealistic stock price momentum ends, is it a stock worth buying? For that, you need to understand its business model. It aims to use technology to help individuals and corporations become environmentally, socially, and governance (ESG) compliant.

Facedrive’s “people-and-planet-first” platform started as a ride-sharing service and then expanded to other verticals:

  • Marketplace: a sustainable e-commerce platform
  • Foods: food-delivery service
  • Social: e-social platform
  • Health: contact-tracing and sustainable health services business
  • Steer: electric car subscription

All these services have one target audience, and that is environmentally conscious millennials. You can look at this model from two angles: a diversified revenue stream or too many businesses that lead to high expenses.

The bull and bear case of Facedrive 

In the third quarter, Facedrive’s revenue surged 36% year over year (YoY), and its operating expenses surged 186%. The company is in a high-growth stage and therefore has a high expense. If you look at most cloud-based software companies, most of them fail or get acquired during this stage, as they are unable to control expenses and capture market share. Until the company gains some decent market share in the ride-sharing business, the risk is high.

On the bright side, Facedrive is well capitalized with over $13 million in cash reserve. Moreover, the growing awareness in the market of becoming ESG-complaint can trigger the adoption of sustainable ride sharing. Leaders like Uber and Lyft plan to become 100% EV by 2030. This is where Facedrive has a competitive advantage, as it is already 100% EV.

I won’t bank on Facedrive’s various revenue streams at this point, as the company is making more losses than revenue. Its third-quarter revenue was $0.26 million, while its net loss was $3.5 million.

Investor takeaway 

There are better growth stocks than Facedrive. Lightspeed POS stock rose six-fold last year on the back of strong demand for its solutions. The company is gradually gaining market share through organic growth and acquisitions. The earnings number speaks for itself. Even Lightspeed has not made any profit, but its revenue surged 78%. In the last 12 months, it reported a net loss of $100 million on revenue of $175 million. The stock has the potential to grow in the coming years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool owns shares of Lightspeed POS Inc. The Motley Fool recommends BlackBerry and BlackBerry.

More on Tech Stocks

A person looks at data on a screen
Tech Stocks

Building a $25,000 Tech Stock Portfolio That Could Thrive for a Decade

With strong earnings and smart growth strategies, these two tech stocks could reward patient investors handsomely over time.

Read more »

Investor reading the newspaper
Tech Stocks

3 Technology Sector Stocks That Could Help Make You a Fortune

Investing in Constellation Software stock, Descartes Systems, and another high-flying TSX tech stock could make you richer and happier

Read more »

taiwan semiconductor tsmc fabrication of semiconductor chip wafers_tsmc
Tech Stocks

Meet the Monster Stock That Continues to Crush the Market

From AI to aerospace, this TSX winner keeps surprising investors with solid growth.

Read more »

woman looks at iPhone
Tech Stocks

Shopify, Lightspeed, and WELL Health: Are They Good Buys Today?

While broader markets have rallied, Shopify, Lightspeed, and WELL Health stocks haven't followed suit, showing weaker performance.

Read more »

A robotic hand interacting with a visual AI touchscreen display.
Tech Stocks

2 Canadian Stocks That Could Turn $10,000 Into $100,000

If there are two Canadian stocks worth the investment, it has to be these two offering up decades of growth.

Read more »

coins jump into piggy bank
Tech Stocks

The Smartest Way to Invest $7,000 in Your TFSA This Year

Investing in small-cap TSX stocks such as DTOL should help TFSA holders deliver outsized gains in 2025 and beyond.

Read more »

dividends can compound over time
Tech Stocks

The Smartest Growth Stocks to Buy With $1,000 Right Now

Have $1,000 to invest for growth? These three Canadian stocks could still have a long runway to grow sales and…

Read more »

match strikes and starts a flame
Tech Stocks

2 Explosive Stocks That Could Go Parabolic

As the TSX rallies, these two explosive stocks are showing no signs of slowing down, backed by solid fundamentals and…

Read more »