In 2020, I was doxxed for the first time. The culprit was a negative article about XpresSpa, an unprofitable chain of airport-based massage parlors with bizarre plans for surviving the Covid-19 pandemic. To me, it was a case of big dreams and no strategy.

XpresSpa fans, however, weren’t pleased. Within hours of publishing the piece, I started receiving threatening phone calls to my house. And as time went on, one thing became clear:

My team and I had stumbled upon the emerging world of cult stocks.

These assets are unlike the AMC Entertainment (NYSE:AMC) and GameStops (NYSE:GME) of the world. Because rather than operate a cash-generating business, cult stocks tend to focus only on raising capital as their end goal. SafeMoon… Humble (OTCMKTS:HMBL)… Goes Up Higher… Lordstown Motors (NASDAQ:RIDE)… Naked Brand… Vinco Ventures (NASDAQ:BBIG)… With clever marketing and hype, these companies and cryptocurrencies milk millions from their die-hard fans while keeping investors happy for just long enough.

Today, a new company is beginning to find itself on that list: Mullen Automotive (NASDAQ:MULN).

MULN Stock: The Rise of a Meme

In November 2021, Mullen Automotive began trading on the Nasdaq Exchange after a backdoor listing with mobile payment firm Net Element. The combined firm promised to “provide exciting EV options built entirely in the United States and made to fit perfectly into the American consumer’s life.”

At the time, these assurances seemed plausible. Electric vehicle companies were raising billions of dollars to become the next Tesla (NASDAQ:TSLA), and Mullen’s Nasdaq listing suddenly gave the startup access to that enormous capital market. For a brief moment, Mullen seemed as if it could become the next big thing. Shares would hit a split-adjusted high of $397.50 around that time.

Indeed, the EV startup would quickly raise over $200 million from willing investors. A constant stream of positive PR would also help keep investors engaged.

But the honeymoon period would quickly give way to financial reality.

By the end of 2022, the company was consuming $127 million of cash per quarter, a product of spending on overhead and acquisitions. Outstanding shares would also spike from 9.5 million to 67 million (split-adjusted) as the firm turned to increasingly dilutive issuances to plug the gap. Suddenly, the “built entirely in the United States” mantra gave way to “sell anything that will sell.”

Even retail investors began to get nervous as shares dropped under $1. According to data from Fintel.io, retail ownership of Mullen dropped by 60% between May and December of that year. Although you wouldn’t know it from Mullen’s outsized following on social media, investors were slowly tip-toeing away.

Redditors Are Finally Giving Up

The pace of selling accelerated in February this year. According to the same dataset from Fintel, another 55% of the remaining retail owners have sold in the past three months — the equivalent of going from a Tesla-level of ownership to Intel. And it’s still trending down.

Perhaps the final straw was Mullen’s execution of a 1-for-25 reverse share split, a phenomenon known to predict negative future returns. By raising the value of shares above $1 to avoid a delisting, Mullen’s management also made it easier for short sellers to establish positions. A short seller is far more likely to sell a $2 stock than a 10-cent one if they’re worried about getting blown out of the water.

Retail investors were also turned off by the increasing levels of hype that Mullen’s team concocted in the weeks leading up to the reverse split.

On April 20, for instance, the firm announced partnering with Global EV Technology to extend the effective life of batteries. The CEO of that organization, Lawrence Hardge, would take to Facebook to tease a $10 billion contract with Saudi Arabia, “and more to come.” The EV startup would follow up a week later with an announcement that it had retained ShareIntel to help investigate high levels of failure to deliver on short sales, a tactic used by Genius Group (NYSEMKT:GNS) and others to push share prices higher in the short term. An unscheduled business update on April 30 also announced the firm had $116.1 million cash available for operations.

Regardless of the reason, a quick read through Mullen’s social media presence makes it abundantly clear that retail investors are finally tired of the company’s constant hype.

What’s Mullen Stock Worth?

A strict, bottom-up valuation of Mullen paints a grim picture. Though the firm supposedly has over $100 million of available cash, its liquidity situation looks far tighter.

In early April, the company issued $20 million in promissory notes designed to be held until a $45 million cash infusion arrived two weeks later. Most firms will only do this if they’re short on liquidity. (The non-GAAP term “cash available for operations” might also refer to the remaining $45 million payment due on May 15).

Mullen’s funding sources are also beginning to dry up. In March 2023, Drawbridge Investments and DBI Lease Buyback Servicing sued the EV company over “acting in bad faith” over a Series E conversion. Mullen’s management had converted so much Series D stock that the remaining authorized Series E class had shrunk from several hundred million to less than 10.3 million. Even Series D shares could become less attractive to institutional investors if converted stock becomes harder to sell in public markets. (As a reminder, Series D holders receive a 185% bonus when shares are exercised).

That means Mullen could struggle to produce the 1,000-vehicle order recently announced. Rival automaker Rivian (NASDAQ:RIVN) required $1.78 billion in 2022 to produce 24,337 pick-up trucks, or $73,000 per vehicle. Mullen’s pricier Class-3 vehicles could cost $100,000 per van, depleting any remaining cash.

If that were the case, Mullen’s public stock could become worthless in the long run. According to its most recent 10-Q filing, Mullen’s $516 million of total liabilities (including non-controlling interest) far outweighed its $441 million total assets as of December 2022. Even if the company could recoup the value of its Bollinger and Electric Last Mile Solutions acquisitions, the firm is now carrying far too much debt for equity holders to own much.

In the meantime, investors should watch the $1 stock price range. This psychological barrier would price Mullen at a $151 million valuation and is approximately what shares are worth if debtholders suddenly converted all outstanding loans into equity. That’s $441 million of assets minus the following:

• $92.8 million goodwill
• 50% of its $113.4 intangibles (one assumes they’re worth more than zero)
• $20.7 million accounts payable and accrued expenses
• $96.1 million minority interest
• $14.5 million deferred income tax

The Draw of Cult Stocks

So, whatever happened with XpresSpa, the company I initially mentioned?

Despite its fans’ efforts to suppress negative opinions, shares of the struggling massage parlor would fall anyway. Today, shares of its current iteration, Xwell (NASDAQ:XWEL), are worth only 25 cents . The firm has until October 2023 to regain a minimum $1 share price to keep its Nasdaq listing.

The other cult stocks listed above have also struggled to continue operating. Even the most die-hard investors eventually lose patience or run out of dry powder.

Of course, Mullen might still survive… and even thrive. According to the House Ways and Means Committee, the U.S. government could pour as much as $196.5 billion into electric vehicles over the next decade. Mullen expects the Federal Tax Credit to apply to its Class 1 EV cargo vans.

But the firm has struggled to live up to its promises before. And if the history of cult stocks is any guide, investors are better off cutting their losses today than rolling the dice on this risky bet.

As of this writing, Tom Yeung did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.