Do day traders really need to care about the fundamentals of a company?
You might think they don’t…
But I like to say, “Know what you own.”
Because as a trader you’re buying a piece of the company.
You should know if you’re getting into a sketchy money-losing biotech stock that can dump shares on you at any moment…
Or if you’re trading a reputable company with a stock that might move slowly — but at least you don’t have to worry about getting caught in a death candle to the downside.
Sometimes the company’s valuation or chart doesn’t tell you the whole story about its worth…
So today I’m showing you one example that proves you can’t judge a book by its cover — or a stock by its chart.
If you aren’t familiar with trading or know the dark side of penny stocks and the market, you might be fooled by this company and its stock…
How VinFast Outran Ford and GM in Stock Price
Let’s take a look at two auto industry giants … These companies have been in business for years, expanding and increasing their valuation over time…
Ford Motor Company (NYSE: F)
Market cap: $47 billion
Vehicles delivered in 2022: 4.2 million
Friday’s Trading Price: $11.754
The Ford Motor Company is one of the oldest and most iconic names in the global automotive industry. It boasts a rich history dating back over a century.
The company is known for pioneering mass production techniques with the Model T. From there, Ford has evolved to offer a diverse lineup of vehicles, from trucks and SUVs to electric and hybrid models.
While facing competition from newer entrants, Ford has remained a prominent figure in the automotive landscape.
But you can see the stock doesn’t move very far off its median price. Over the last 10 years, it’s barely moved…
F chart: 10-year, daily candle — courtesy of StocksToTrade.com
General Motors Company (NYSE: GM)
Market cap: $45 billion
Vehicles delivered in 2022: 5.9 million
Friday’s Average Trading Price: $32.68
When it comes to automotive stocks and its products, I’m more of a Ford guy.
But GM has a storied history that includes pioneering innovations like the Suburban and the Volt.
GM remains at the forefront of automotive technology, producing a wide range of vehicles from sedans and trucks to electric and autonomous vehicles.
But like Ford, its stock price barely moves because of its huge market cap and number of shares outstanding.
GM chart: 10-year, daily candle — courtesy of StocksToTrade.com
Despite Ford and GM’s long history in the automotive industry … And the years it took them to grow to their valuations…
There’s a new kid on the block that’s taking over as one of the largest auto manufacturers in the world.
At least when it comes to the stock’s price…
VinFast Auto Ltd. (NASDAQ: VFS)
Market cap: $88 million
Vehicles delivered in 2022: 24,000
Friday’s Average Trading Price: $61.45
VinFast Auto Ltd. was able to surpass Ford and GM’s stock price in just a few days of becoming a publicly traded company.
But it’s not because of the company’s fundamentals…
The company doesn’t make any money — it actually loses money.
And it’s not because they make or deliver a bunch of fancy cars that are in high demand.
The company only delivered 24,000 vehicles last year. That’s roughly the same number that Rivian Automotive, Inc. (NASDAQ: RIVN) delivered, and that stock trades for around $20.
In just one week VFS went from $16.78 to a high of $73.90 — that’s a 340% gain.
VFS chart: 1-year, daily candle — courtesy of StocksToTrade.com
The rocketing stock price is due to a massive short squeeze that brought the company’s valuation up to a market cap of over 93 million.
A short squeeze happens when short sellers bet against a stock. To exit their positions, they have to buy the stock back. So as more and more buying demand comes in, more short sellers also have to buy.
It creates a wave of buying that sends stocks soaring.
With VFS’s relatively small market cap and low float, it became a prime target for short sellers.
But because there was such an imbalance between supply and demand, the stock price kept rising.
So, what’s the lesson here?
As day traders, it’s essential to understand that stock prices don’t always reflect a company’s fundamentals.
In the case of VFS, it wasn’t the number of cars they delivered or their market cap that drove up the stock price; it was the dynamics of short-selling and buying pressure.
Embed: https://www.youtube.com/watch?v=rDfyX-VjqPI
Short squeezes can lead to fast and unpredictable price movements.
But don’t get caught up in any hype thinking this company will be the next Tesla, Inc. (NASDAQ: TSLA).
Just look how that worked out for Mullen Automotive, Inc. (NASDAQ: MULN) bagholders…
MULN chart: 1-year, daily candle — courtesy of StocksToTrade.com
Focus on price action and look to take advantage of these short squeeze moves — but know what you own.
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Tim Bohen
Lead Trainer, StocksToTrade