Facedrive (TSXV:FD) stock has been associated with a great deal of volatility in recent months. Since trading around the $60 mark in February, shares of this company have plummeted more than 70%. Today, this stock is trading around the $17 mark. Similar to most of the other meme stocks this year, retail investors have considered Facedrive as an excellent short-squeeze opportunity.
This is a small-cap stock with a low stock price and high short interest. Accordingly, retail investors did what they did best and managed to drive this stock up in a pretty impressive fashion earlier this year. However, as we’ve seen with other retail pumps, the dump is on. The company’s valuation still doesn’t make sense, and there are reasons to worry for investors holding this stock.
Here are two big concerns I have with Facedrive right now that I’d caution investors on.
There’s nothing unique about Facedrive’s business model
Growth stocks are in great demand as of now. Investors are in search of companies with business models loaded with long-term growth potential. However, in that regard, Facedrive’s business model doesn’t make the cut.
Well, I think there’s nothing particularly special about this company’s business model. Indeed, Facedrive’s ride-sharing platform isn’t any different from much larger and mature companies like Uber and Lyft. However, the big difference is that Facedrive’s revenues are microscopic in relation to the companies it’s attempting to model its business after. And market share is everything in this space.
Right now, I don’t see a unique value proposition with this stock that would lead me to believe Facedrive will ultimately be successful in this space. The company is simply too far behind its competitors right now. Additionally, Facedrive is burning through a lot of cash, and I don’t like the look of the company’s balance sheet. I don’t think this company will be able to sustain its existing operations as is, barring some sort of miracle where its stock price rises dramatically, and it’s able to issue a tonne of shares.
The hype around this stock hasn’t materialized
It seems that even a little EV exposure can be enough to attract retail investors right now. At least that’s what Facedrive’s acquisition of Steer in 2020 indicates.
Many believed that this takeover would set this company apart from its peers. Adding an EV angle to the ride-sharing space indeed could be intriguing to investors.
However, Facedrive’s actual business model seems to rely heavily on ICE vehicles right now. The transition is far from being complete. While investors might think this is an EV-focused ride-sharing company, what they’re really buying into is a microscopic, struggling idea of a ride-sharing company operating in only two markets with very small market share and sky-high costs.
That’s not a recipe for success.
If there’s one meme stock to avoid right now, it’s Facedrive.
Even after a 70% drop, it’s still one of the most overvalued companies in the universe, in my opinion. There’s absolutely no reason to own this stock today.
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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 Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool recommends Uber Technologies.