Kaixin Auto Holdings (NASDAQ: KXIN) is screaming for the top in the market this morning, and for good reason. The company announced that it has entered into two vehicle sales framework contracts, exciting investors.
Here’s what’s happening:
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- Kaixin Auto Entered Into Vehicle Sales Framework Contracts
- There Could Be a Short Squeeze Coming
- Risks to Consider Before Buying KXIN Stock
- Final Thoughts
Kaixin Auto Entered Into Vehicle Sales Framework Contracts
In a press release, Kaixin Auto Holdingssaid that it has entered into two vehicle sales framework contracts through its subsidiaries. Moreover, the company entered into a definitive share purchase agreement with shareholders of Haitaoche in December, under the terms of which, it will acquire 100% of the share capital of Haitoche from shareholders.
As part of the Vehicle Sales Contracts, each of the customers has agreed to purchase $75 million worth of consumer vehicles from the subsidiaries of Haitaoche in 2021. Moreover, the volume of sales will increase by at least 20% annually over a five year period.
All told, KXIN said that the two Vehicle Sales Contracts have a value of about $1.2 billion.
The company went on to explain that Haitaoche is a China-based online retail platform for imported vehicles. The company is committed to developing into China’s leading innovative automotive retail trading platform with a track record of strong performance and a positive reputation. Moreover, KXIN said that Haitaoche is moving into sales of electric vehicles, tapping into a vast and emerging market.
There Could Be a short Squeeze Coming
The fact of the matter is that KXIN could be the next big short squeeze. At the moment, more than 7% of the volume on the stock is sold short. While that number is below the 20% short volume that I generally look for when tracking short squeezes, there could be something to this one.
The public float on Kaixin Auto stock is under 11 million. That’s an ultra-tiny float, meaning that the supply of shares is incredibly short. When demand ticks up on shares that are in short supply, gains could be tremendous.
So, while short interest is lighter than the average short squeeze target, the fact that there’s such a small supply of shares of KXIN available in public markets sets the stage for tremendous gains should retail investors band behind the stock.
Risks to Consider Before Buying KXIN Stock
If you’re thinking about buying Kaixin Auto stock, it’s important that you consider the risks. After all, there’s no such thing as an investment that doesn’t come with the risk of loss. Some of the most significant risks to consider include:
- Profitability. KXIN has yet to turn a profit. So, it has to survive on the money it has in the bank. If that’s not enough, and the company finds itself in need of funding, it may tap public markets to access cash. Should this be the case, we could see significant declines as value is diluted for existing shareholders.
- Emerging Markets. Kaixin Auto Holdings is an emerging markets play. While emerging markets can yield compelling gains, they also come with increased risk, as these markets tend to hit bumps in the road from time to time.
- Pennies. Finally, KXIN is a penny stock. As such, it is subject to high levels of volatility, which could result in significant losses.
Although there are risks to consider before diving into KXIN stock, there’s also a potentially lucrative opportunity here. With the positive news, the shorts that are in the stock could be squeezed out.
Should this take place, these shorts will have to buy shares to cover their positions, leading to a big increase in demand for shares. With supplies so low, the gains here could be compelling. All told, KXIN stock is one to watch closely.