In numerous prior pieces, I’ve urged investors to steer clear of Facedrive (TSXV:FD) stock — a name referred to by fellow Fool Jitendra Parashar as “the next Tesla” — warning of an imminent momentum reversal. Undoubtedly, the stock had become too hot in recent months. And if you’d chased the stock with hopes of scoring a quick gain, you probably took a very painful hit right on the chin. And I’m not so sure the name can recover quickly after this brutal growth-driven sell-off.
Shares of Facedrive dropped 57% from peak to trough before bouncing back modestly such that shares are now down just over 52%. If you bet on Facedrive stock at the wrong time, you lost half your investment, and all it took was a few weeks. This shows the dangers of chasing high-flying growth stocks on the TSX Venture Exchange (TSXV).
In this piece, we’ll go into greater detail on whether the plunge in Facedrive stock is a buying opportunity or if it’s the start of a move much lower, perhaps to back to single-digit territory — a level where FD stock started 2020.
Facedrive stock: Buy the dip? Or is this a value trap?
After shares got cut in half, Facedrive now boasts a $1.6 billion market cap. While the “story stock” driven higher by electric vehicle (EV) hype and Tesla comparisons may seem like a steal at current prices, I wouldn’t be so quick to jump in at these depths.
While FD stock could stand to soar if the 10-year U.S. Treasury note yield continues pulling back, I would argue that the likelier scenario would see bond yields climb past the 2% mark. Such a move by the bond market would be detrimental to the bid-up growth story stocks like Facedrive, and think FD stock is still at risk of crumbling like a paper bag.
Can Facedrive stock get cut in half again?
Remember, just because a stock gets cut in half doesn’t mean it can’t get cut in half again. Facedrive is a rapidly falling knife that could hurt those who aren’t careful with how they purchase the name. The next meaningful support level is at around $20 and change. That implies another drop in excess of 30% that could be in the cards.
If you’re keen on getting in the name, I’d wait for the level to be tested. Personally, I wouldn’t advise betting on the highly speculative play, because the business model isn’t at all unique. I see no moat and think the business can be easily replicated by its bigger brothers in Uber or Lyft.
Sure, Facedrive may be some Tesla-flavoured version of Uber or Lyft. But I still don’t get why one would want to pay a nosebleed-level valuation of 2,860 times sales to gain such exposure.
Foolish takeaway on FD stock
I don’t think anything is stopping the name from dropping to the single digits by year’s end, especially if the tech market continues crashing over worrisome bond yields. In any case, I hesitate to recommend buying FD stock after its recent plunge, as I still believe shares are astronomically overvalued.
Speaking of wonderful businesses, check out these picks curated by the team here at the Motley Fool Canada.
Renowned Canadian investor Iain Butler just named 10 stocks for Canadians to buy TODAY. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.
Because Motley Fool Canada is offering a full 65% off the list price of their top stock-picking service, plus a complete membership fee back guarantee on what you pay for the service. Simply click here to discover how you can take advantage of this.
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 Joey Frenette has no position in any of the stocks mentioned. David Gardner owns shares of Tesla. Tom Gardner owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla.