Daily Stock Market News

MULN stock squeezes higher as Russell 2000 membership beckons


  • MULN stock closed over 8% higher on Wednesday.
  • MULN stock is still down 10% for the week and down 78% for 2022.
  • Mullen Automotive is a retail-only name, highly volatile and highly speculative.

Mullen Automotive (MULN) is a name we have covered numerous times in 2022 as the stock exhibited some classic volatility associated with retail and penny stocks. Make no mistake, this meets classic penny stock classification and means investing remains highly risky. We have been very negative in our outlook on MULN stock and have taken repeated criticism for our stance. However, our goal here is to take emotion out of trading and try and report on what we see in terms of value and invertibility. Mullen still fails in our view on these counts, and we remain extremely bearish on the stock. 

MULN Stock News: Russell me up some bulls

The most significant recent development for Mullen has been the news that it is set to join both the Russell 2000 and Russell 3000 indices. This is significant and should result in index reweighting inflows to the stock. We have no calculation as to how much those flows will be as of yet. MULN is due to be added to the indices on June 27. David Michery, the CEO of Mullen, was understandably happy with the news.

“The inclusion of Mullen Automotive shares in the Russell 2000 and 3000 indexes, which are some of the stock market’s top performance benchmarks, is a great honor,” Michery said. “I believe that our inclusion in the Russell Indexes will bring Mullen Automotive great visibility within the institutional investment community. This is an excellent milestone for our Company, which will provide increased liquidity and investor awareness.”

He is correct that institutional investors will begin to take a closer look at MULN stock now that it is part of the two Russell indices (not ‘indexes’!). This can be both positive and negative. In the short term, it should in our view be a catalyst, given fund managers and index trackers will be forced to buy the stock to keep track with the index. The counter-argument is that index arbitrage market makers often identify which stocks they think are weaker when hedging index risk. This may mean market makers will choose to have a short bias toward MULN if they see it as one of the weaker names within the index. 

However, the news is not yet final as FTSE Russel detail their mechanism for additions and deletions. “Beginning on June 3, preliminary lists will be communicated to the marketplace and updates will be provided on June 10, 17 and 24. The newly reconstituted indexes will take effect after the market close on June 24.”

MULN Stock Forecast: June 27 a catalyst

We remain bearish on the stock and think it may never manage to get into production. Costs are a huge issue in automotive startups. The current macro environment has turned extremely negative toward companies that require debt. Cost of capital has soared and become unavailable in some sectors. Below is a chart of the Junk ETF showing the market’s agressive selling of junk bonds and the resultant increase in yields. 

JNK chart, daily

This makes MULN a long-term bad bet in our view, but we do realize that June 27 could see a short-term catalyst. June 27 is Russell’s rebalancing day with volume on June 24 likely soaring. In 2021 it was the biggest volume day of the year.

 

 


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