It’s not too often that I’m asked whether investors should buy the stock of a company that doesn’t even have a product – and probably won’t be around much longer. But that’s where we are with Graf Industrial (NYSE:GRAF). GRAF stock has been getting a lot of attention lately.
No doubt, there are special circumstances in play here.
Graf is what’s known as a special purpose acquisition company (SPAC). These so-called blank-check companies have no operations at all but are created in the short term with the plans to merge with a private enterprise to take it public.
According to SPACInsider, 43 SPACs have gone the IPO route so far this year, and 59 companies did so last year, including sports betting site DraftKings (NASDAQ:DKNG) and Richard Branson’s effort to privatize space flight with Virgin Galactic (NYSE:SPCE).
Graf raised $225 million in its IPO in 2018. Things got a little interesting in mid-April, when Graf issued a news release announcing it was negotiating with a polypropylene recycling company to take it public.
The company was later identified as PureCycle Technologies. Graf spoke glowingly about what it called a groundbreaking recycling process that separates contaminants from plastic waste “to transform into virgin-like resin.”
If you read the materials, you would think that Graf was all-in on plastics recycling and that the company had a true passion for green efforts that made its collaboration with PureCycle a natural fit.
But the deal fell apart. Just a month after Graf’s announcement, PureCycle was celebrating a new partnership it signed with Total (NYSE:TOT). That’s a deal that actually makes sense because both PureCycle and Total are in the plastics business.
And like a spurned lover, Graf went off looking for a new suitor. Now it’s found one.
A Cloer Look at GRAF Stock
The new company that’s caught Graf’s wandering eye is Velodyne Lidar, which is a pioneer in driver-assistance technology that is already backed by Ford (NYSE:F), Baidu (NASDAQ:BIDU) and Nikon (OTCMKTS:NINOY).
The companies announced their partnership on July 2, in which Velodyne will emerge as a wholly-owned subsidiary. After the deal closes in the third quarter of this ear, Graf would be renamed Velodyne Lidar and be listed on the New York Stock Exchange with the ticker VLDR.
Velodyne founder David Hall and its initial investors will retain an equity interest of 83% in the new company, which is expected to have an initial market cap of $1.8 billion.
Velodyne is best known for making radar-like systems for self-driving vehicles. The technology, known as lidar, involves using lasers to generate 3-D images of the environment, and is already used by Ford and Mercedes-Benz.
Velodyne CEO Anand Gopalan said the Graf deal will pay off for investors.
“Partnering with Graf Industrial will provide the opportunity to enhance our leading position in the lidar and sensor markets broadly around the world, creating new and exciting opportunities for our customers and employees. We will continue to focus on executing our strategic plan to deliver strong and disciplined growth, while realizing attractivThe Vale returns through prudent capital management.”
Graf stock, which was at around $10 per share six weeks ago, is now around $17.50.
The Bottom Line on Graf Stock
The self-driving vehicle business is certainly more attractive than plastic recycling. And it’s a lucrative business.
Marketwatch reports that the self-driving car market is expected to expand by a compound annual growth rate of 36% through 2023, resulting in revenue of $173 billion.
There’s no doubt that Velodyne will be an interesting business when it launches, but I’m also confident that there’s no value to be made between now and when the deal launches and VLDR stock hits the exchange.
For now, investors are advised to sit this one out. VLDR is a name to watch when we head into the fourth quarter.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders. As of this writing, he did not hold a position in any of the aforementioned securities.
