Why Ayro Stock Still Looks Like an EV Winner

After reviewing the transcript of Ayro’s (NASDAQ:AYRO) latest earnings conference call, I think the company will probably generate a great deal of revenue from selling its food-delivery vehicles to restaurants. Moreover, I’m unimpressed with the bears’ arguments about Ayro stock, and I remain very upbeat on the shares’ longer-term outlook.

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On Ayro’s Q3 earnings conference call, the company’s CEO, Rod Keller, said that the electric-vehicle (EV) maker is  focusing on the “food delivery” market as well as on EVs “that excel in last mile delivery and campus applications.” For reasons that I’ll explain below, I’m very confident about Ayro’s chances in both these market niches.

The Food-Delivery Market

According to Keller, Morgan Stanley predicts that the “burgeoning food delivery market” will be worth $470 billion worldwide “by 2025.” Indeed, since consumers have gotten much more used to ordering in restaurant food during the novel-coronavirus pandemic and many millennials appear to enjoy ordering in more than going to restaurants, I expect the food-ordering market to continue to remain strong in coming years.

Two other factors that will likely keep the food-ordering market strong are the work-from-home trend and the exodus from America’s cities. Those working from home are more likely to order in than go to restaurants during their lunch breaks. Further, since they will no longer be able to meet people for dinner before going home or stop to pick up food on their way home, they’re also more likely to order dinner in than those who commute.

Keller, Ayro’s CEO, noted that “third party delivery services “like GrubHub and Uber Eats… can charge {restaurants} up to 30% of the bill to make deliveries. ” As a result, he argues that restaurants will look to buy their own food-delivery vehicles.  That argument is actually quite persuasive. And, as I’ve noted previously, many companies, looking to impress the tens of millions of consumers who passionately care about fighting climate change, are likely to buy EVs. Given all these points, I think that Ayro’s food-delivery EVs are likely to generate huge revenues for the company.

Ayro’s Delivery and Campus Trucks

In my August 2020 column on Ayro stock, I noted that the company’s battery-electric trucks would be a good fit for carrying out deliveries on university and corporate campuses, and that the company’s EVs would also be well-suited for use as “food trucks.”

Also in that column, I pointed out that many companies and universities will likely switch to using EVs, while Ayro’s partnership with giant food-cart maker Gallery Carts validates Ayro’s EVs and should prove to be a strong, positive catalyst for AYRO stock.

I remain quite sure of these arguments.

Refuting the Ayro Stock Bears

One point the bears have made is that Ayro’s EVs are not physically attractive. I actually think they look pretty cool. But even if I’m wrong, I find it hard to believe that most enterprises will base their decision on which food trucks and delivery trucks to buy primarily based on the vehicles’ appearance.

Most consumers, after all, will not decide which food truck to patronize based on their appearance, unless they look dirty and decrepit (and Ayro’s trucks certainly don’t fit in that category.) In general, I believe that the appearance of food delivery trucks is  also not very important,  while the aesthetics of vehicles that deliver other products are usually even less critical. (Did anyone ever say, “Amazon’s (NASDAQ:AMZN) delivery vehicles aren’t pretty and/or Domino’s (NYSE:DPZ) delivery vehicles aren’t attractive, so I won’t order from them anymore?” I don’t think so).

Cost, however, is an important factor for companies when it comes to buying vehicles, and Keller said that Ayro’s EVs “offer tremendous operating cost savings.” Of course, functionality is critical, and as I’ve said, I believe that Ayro’s deal with Gallery Carts indicates that Ayro’s EVs work very well.

Finally, a number of bears have criticized Ayro for its dependency on Gallery Carts, as the lion’s share of Ayro’s revenue is currently generated from that company. However, I believe that will change when Ayro begins selling its food-delivery truck.

And while I admit that Ayro’s lack of customer diversity makes Ayro stock more risky than it would be if its customer base was more varied, a high degree of customer concentration has not prevented many other companies’ stocks from delivering great returns over the years.

For example, Cirrus Logic (NASDAQ:CRUS) has historically been reliant on Apple (NASDAQ:AAPL) for the vast majority of its revenue,  but Cirrus’ shares jumped from $32 in February 2016 to $84 in January 2020.

The Bottom Line

Ayro’s businesses look poised to succeed, making  Ayro stock, with its market capitalization of just $184 million, worth buying.

On the date of publication, Larry Ramer held a long position in Ayro.  

Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Roku, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.