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Kaixin Auto Stock Is an Obvious No-Go

Matt McCall and the InvestorPlace Research Staff
·4 min read

We’ve seen some crazy rallies this year. Some have had a bit of logic. The staggering gains in Kaixin Auto’s (NASDAQ:KXIN) KXIN stock do not.

assortment of cars in a parking lot
assortment of cars in a parking lot

Source: Shutterstock

Since Oct. 13, KXIN stock has gained 667%. That fact alone doesn’t necessarily doom the stock. We’ve seen steep and fast moves in a number of stocks and sectors, in part due to the novel coronavirus pandemic.

Developers of Covid-19 treatments and vaccines unsurprisingly soared when the scope of the pandemic became apparent. “Pandemic winners” like videoconferencing providers or e-commerce companies spiked once investors recognized the beneficial effects of the pandemic on those industries. Electric vehicle names have won big thanks to political factors and growing commercial demand.

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KXIN has traded like it belongs to one of those groups. But it doesn’t. Rather, these huge gains seem driven by a speculative frenzy that isn’t going to last.

An Unbelievable Four Days

The rally that KXIN saw in October truly was spectacular. On Oct. 13, the stock closed at 54 cents. Volume of 19,000 shares was somewhat lower than normal, but not totally out of line.

The next day, KXIN rose 267%, closing at nearly $2. Volume cleared 60 million shares — more than 3,000x the previous day’s activity. A 32% sell-off the following day with ‘only’ 6 million shares traded suggested that at least some traders had moved on.

They hadn’t. Kaixin stock rose 55% on Thursday, Oct. 15, and then topped it off by soaring 294% on Friday. That day, incredibly, 235.3 million shares traded hands. That figure was roughly 7x the number of shares outstanding, and nearly 200x the float (at least based on publicly available data).

All told, KXIN would gain 1,400% over the four sessions, moving from 54 cents to over $8. That’s a truly incredible run.

What’s more incredible is that there was no apparent reason for the gains. Kaixin itself told MarketWatch that the move “came as a surprise.” And the volume associated with the rally in fact supports that contention. This wasn’t the market reacting quickly to news that materially changed the outlook for KXIN stock. This was day traders going nuts.

No Bull Case for KXIN Stock

Unsurprisingly, KXIN would drop by nearly two-thirds over the next trading sessions. The stock saw another huge spike in November, tripling in two days, but as I write this the stock sits back near $4.

That’s still far too high a price. There’s just nothing here. It’s possible some investors see KXIN as a play on Chinese electric vehicle growth, but it’s no such thing. The company formerly ran used car dealerships in China, but shut that business down this summer.

In November, Kaixin announced plans to merge with a firm named Haitaoche. This essentially looks like a reverse merger, with Haitaoche contributing its automotive retail platform in exchange for 51% of Kaixin stock.

That agreement appears to have contributed to the brief parabolic gains in November. But there’s not much here, if anything. Haitaoche doesn’t appear to have a business yet; rather, it is aiming to enter the hugely crowded space.

And investors who believe Kaixin can become an EV play with Haitaoche should read the press release announcing the merger. It seems difficult to believe that a company that wrote repeatedly about targeting the market for “electronic vehicles” — yes, “electronic vehicles” — is going to be a factor in China’s electric vehicle market.

What’s Going On?

So, what’s going on? Surely there has to be some bull case for KXIN stock, right?

Whatever it is, it’s almost impossible to see. Essentially, the market seems to be valuing Haitaoche at close to half a billion dollars, given that Kaixin will own 49% of the company and has a market capitalization of roughly $244 million. Some investors might believe that Kaixin’s dealerships could come back, but if that were to be the case then the Haitaoche deal makes no sense.

There’s no evidence that Haitaoche is worth $500 million. In fact, there’s no evidence that Haitaoche is worth anything at all.

There’s plenty of evidence, however, that KXIN stock has traded in a way completely unmoored from any sort of fundamental analysis. The problem with that kind of trading is that it always ends at some point. KXIN will be no different.

On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.

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