I’ll admit that, among the smaller electric vehicle pickss, Canoo (NASDAQ:GOEV) stock has a lot more going for it. This maker of specialty EVs (for functions such as deliveries) has built up an impressive backlog of orders.

Not only that, there’s another promising sign with this EV play: insider buying. Yet while you may see all of this, and conclude the ingredients are in place for Canoo (down more than 90% from its EV bubble highs) to make a comeback, you may want to think otherwise.

It may be making more progress than a lot of its small, early-stage peers, but Canoo has one issue that puts it in the same camp as other fledgling EV upstarts like Mullen Automotive (NASDAQ:MULN): undercapitalization.

That’s a bad sign when it comes to Canoo as an investment opportunity, and here’s why.

A Closer Look at GOEV Stock

Canoo remains in the pre-revenue stage, but come next year, this could change in a big way. The EV maker sports an impressive sales pipeline totaling $1 billion. This backlog consists mainly of a large order placed by Walmart (NYSE:WMT).

Walmart plans to buy at least 4,500, and as many as 10,000, of its Lifestyle Delivery Vehicles (or LDVs). With a high level of orders, analysts forecast Canoo to report around $408 million in revenue next year. Not bad, considering the company’s current market capitalization of just $619.4 million.

Insider buying is another key positive with GOEV stock. As InvestorPlace’s Eddie Pan reported on Sept. 22, CEO Tony Aquila has added 400,000 shares to his personal position in Canoo so far this year. This may be a sign that Aquila is confident his company is about to turn a corner.

But while there seems to be a lot in place to enable Canoo to turn itself around and send the stock back towards prior price levels, there’s one big concern that could get in the way. That’s heavy cash burn, which is expected to remain a problem, even as the company starts generating substantial revenue.

Dilution May Hurt its Rebound Chances

Canoo is long on potential, but short on cash. Per its latest quarterly filing with the Securities and Exchange Commission (or SEC), the company had just $33.8 million in cash on hand as of June 30, far from enough to cover its future cash needs.

Canoo has addressed this concern, cobbling together several financing sources. Yet while a lot of it is coming from non-dilutive sources, such as state economic incentives, and Aquila has said the company is looking to increase its access to non-dilutive capital, it still plans to raise hundreds of millions of dollars via dilutive financing methods.

In short, the company’s cash burn problem points to heavy dilution ahead. If that’s not bad enough, existing shareholders in GOEV stock are in for even more dilution. To lock down the Walmart deal, Canoo gave the retailer warrants to buy up to 61.1 million new shares.

This heavy amount of potential dilution could limit GOEV’s upside potential, as the issuance of more shares cuts the pie into many more slices. All while the stock’s upside potential is limited by the issuance of new shares, downside risk continues to run high, creating a less-favorable risk/return proposition.

Bottom Line on GOEV Stock

Canoo may be on track to finding success as a niche EV maker. After locking down a major commercial customer, the company may be on its way to securing another big-ticket customer, the U.S. Army.

Unlike the scores of small-fry EV companies, many of which will likely end up in the junk heap, this contender may have the ability to one day become a large, profitable business.

Yet it’s questionable whether this translates into big success for investors buying the stock today. In order to turn its sales pipeline into actual sales, Canoo needs to raise substantial capital, most of which through dilutive means.

Even if this company becomes one of the rare success stories among EV “also-rans,” keep in mind that dilution could severely affect the ability of GOEV stock to make even a partial recovery.

GOEV stock earns a C rating in my 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.