Mullen Automotive’s (NASDAQ:MULN) days as a “meme stock” high-flier have long since passed, but MULN stock continues to attract attention from speculators. After declining by 94.5% last year, shares in the electric vehicle startup have seemingly found support at between 25 and 35 cents per share.

Yet while some may be wagering that a big comeback is in store in 2023, there’s little to suggest that will be the case. The factors that sank MULN to sub-$1 per share prices over the past twelve months are likely to persist in the coming year.

Meanwhile, although cheap on an absolute basis, this stock isn’t a bargain. Shares offer an unfavorable risk/reward proposition: heavy downside risk, all while the potential long-term upside is highly questionable.

If you’re looking for an asymmetric investment opportunity, I recommend looking elsewhere. This remains a cheap stock likely to continue getting cheaper.

There’s More Pain Ahead for MULN Stock in 2023

With many speculative growth stocks, one can blame external factors as the root cause of their severe 2022 price declines. For instance, rising interest rates, and the global economic slowdown.

However, when it comes to MULN stock’s massive sell-off, more company-specific factors were the larger driver. Namely, shareholder dilution. Poorly capitalized compared to its larger peers, the EV maker leaned on the issuance of new shares/sale of convertible debt to sustain itself, and fund acquisitions, during 2022.

This resulted in a tremendous jump in Mullen’s outstanding share count, 34.9 million, to over 1.6 billion shares of MULN stock outstanding today. Yet despite the resultant severe destruction of shareholder value due to this dilution, chances are that heavy dilution is far from over.

MULN is behind on submitting its quarterly/annual financial filings, it’s likely to continue burning through a substantial portion of its cash position each quarter. The company also needs cash to fulfill a recent $200 million purchase order, and to finance the development of its flagship Mullen Five electric crossover SUV. Likely further dilution points to more pain ahead for the stock.

Don’t Count on Possible Reverse-Split Saving the Day

In order to keep its Nasdaq market listing, MULN stock needs to get back above $10 per share within the next few months. As InvestorPlace’s Dana Blankenhorn recently wrote, the company is looking to reverse split its shares, in order to achieve this. Mullen is continuing to work towards getting shareholder approval for this plan.

Besides enabling the stock to stay on a major exchange, and to remain in the Russell 2000 index, some may be hoping too that getting the stock price back to the low single-digits, or perhaps out of “penny stock territory” (under $5 per share) will help to kick off a rebound.

Put simply, don’t hold your breath. Reverse splits, like regular stock splits, do not change a stock’s fundamentals/prospects. Whether at 30 cents per share, 3 cents per share, or perhaps $7.50 per share (if the company completes a 1:25 reverse split), the aforementioned issues will still be on the table.

In fact, at a higher stock price, MULN could become more vulnerable to additional price declines. Getting its stock price back above $5 per share will make Mullen much easier to short, given margin requirements for shorting penny stocks.

Bottom Line

As I put it back in November, when last discussing Mullen stock, it’s important to not conflate sharp losses with deep value. Just because a stock has fallen by high double-digits doesn’t mean it has become undervalued.

MULN’s massive drop in price last year was justified. This year does not look any more promising. Mullen is likely to continue reporting heavy quarterly operating losses. The company is also likely to continue raising more capital, at terms unfavorable to existing investors.

On top of this, a reverse split could actually bring in more short-sellers to bet against this EV “also-ran.”

Add it all together, and further destruction of shareholder value appears to be a near-certainty.

The takeaway here with MULN stock is pretty simple. Avoid this former “meme favorite” at all costs.

MULN stock earns a D rating in Portfolio Grader.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.