If a stock plummets far enough, some value hunters may feel that it has nowhere else to go but up. Yet, so long as Fisker (NYSE:FSR) stock is above zero, there’s still room to fall further.

Granted, there have been times when a stock lost the vast majority of its value but then proceeded to make 2x, 5x and even 10x moves to the upside. Nonetheless, for that to occur, the market has to in some way be flawed in regards to the stock or company.

It stays to be seen whether the market is flawed to assign a really low value to Fisker, however the old phrase “low cost for a reason” seems to use to FSR stock now.

Remembering the nice times

When investments go awry, one can not less than wax nostalgic in regards to the sense of hope that accompanied the impulse to purchase in the primary place. Within the case of Fisker stock, buying it hand over fist surely made perfect sense in 2021, when easy-money policy ruled the day and the electric-vehicle market looked like a wide-open field.

Then got here not-so-transitory inflation, high borrowing costs and the Darwin-esque narrowing of the EV industry. Together with that, Tesla (NASDAQ:TSLA) enacted a series of price reductions that put tremendous pressure on its EV competitors.

Even with those contributing aspects in mind, it’s hard wrap one’s head across the brutal drawdown in Fisker stock. It once traded above $29, but now, if you happen to can imagine it, the stock sells for just 13 or 14 cents.

The difficulty wasn’t with Fisker’s vehicles, that are sleek and powerful and have industry-competitive ranges. Moreover, Fisker isn’t one among those pre-revenue start-ups that always go bust; actually, Fisker’s revenue has actually grown over time.

Yet, evidently having fancy vehicles and growing revenue isn’t necessarily enough in a fiercely competitive EV market. In late February, Fisker raised doubts about its ability to proceed as a “going concern” (two of essentially the most frightening words on Wall Street).

With that bombshell, the automaker announced a 15% workforce reduction. It’s funny how job cuts are sometimes received well by investors but will also be viewed as an act of desperation. On this case, the layoffs weren’t well-received, and FSR stock tumbled.

Furthermore, despite its growing revenue, Fisker acknowledged that its resources were “insufficient” to cover the following 12 months. The automaker admitted that unless it secures additional financing, it can have to scale back production of its flagship Ocean electric SUV.

On top of all that, a Form 12b-25 revealed that Fisker can be late in filing its Form 10-K annual report for 2023. Apparently, it needed “additional time to finalize the Company’s consolidated financial statements, finalize the assessment of its internal control over financial reporting and related disclosures, and complete its procedures for the Report.”

There was a possible light at the top of the tunnel, nonetheless. In keeping with Reuters, Fisker teased that it was “in talks with a big automaker for a possible investment and joint development partnership.” Soon afterwards, it got here to light that the automaker in query was Nissan (OTCMKTS:NSANY).

From bad to worse

The situation didn’t improve from there. Citing “people acquainted with the matter,” The Wall Street Journal reported that Fisker had “hired restructuring advisers to help with a possible bankruptcy filing.” Perhaps the one two more frightening words than “going concern” are “bankruptcy filing.”

You might remember how Fisker warned that it may need to scale back the production pace of its Ocean SUV. That wasn’t just an empty statement because it recently announced that it’s halting vehicle production for six weeks.

Moreover, Fisker announced a “financing commitment” consisting of the sale of as much as $166.67 million price of senior secured convertible notes. That’s fancy language for debt which Fisker can have to pay back with interest, and in today’s high-interest-rate environment, one shouldn’t be too surprised to learn that each one that debt won’t be low cost.

To be more specific, the corporate revealed that the “2024 Notes will accrue interest at a rate equal to the 3-month secured overnight financing rate… plus 12% each year, payable on the Maturity Date.” Moreover, Fisker “can pay interest on any overdue principal, installments of interest and Undrawn Investment Fees at a rate equal to three% each year in excess of the then-applicable rate of interest on the 2024 Notes.”

Thus, it should be extremely vital for the automaker to repay this debt in a timely manner — if possible. Whether that can actually occur is one among many known unknowns for Fisker, and its investors are taking an enormous gamble even at the present, rock-bottom share price.

In consequence, while beaten-down FSR stock might appear to be a superb value, just keep in mind that the looks of value isn’t the identical thing as actually being invaluable.

Disclaimer: All investments involve risk. On no account should this text be taken as investment advice or constitute responsibility for investment gains or losses. The data on this report shouldn’t be relied upon for investment decisions. All investors must conduct their very own due diligence and seek the advice of their very own investment advisors in making trading decisions.