With EV stocks cooling down, now may not be the time to speculate in Spartan Energy Acquisition (NYSE:SPAQ). SPAQ stock has been rather unpredictable lately.
On one hand, the pending deal, in which privately-held Fisker will merge with Spartan, a SPAC (special purpose acquisition company), looks like it could produce the big returns seen with similar deals so far this year.
On the other hand, what worked for Nikola (NASDAQ:NKLA) may not work here. For starters, that stock’s successful run after its SPAC merger came when the “EV Bubble” was just warming up. But now, with major EV names like Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO) heading lower, investor interest in the space could be cooling down.
That’s not to say SPAQ stock is headed to lower prices. But, all bets are off whether the merger will pay off for those buying in today.
In short, it’s best to avoid jumping into this name right now. If shares fall back to prior levels, the odds may be in your favor. But today’s prices? Not so much.
SPAQ Stock, the Fisker Deal, and the EV Stock Bubble
Spartan Energy is just one of many special purpose, or “blank check” companies, set up by the investment community to take privately-held companies public. Primarily those in “hot” industries. This has included some non-EV deals, like the merger of sportsbook operator DraftKings (NASDAQ:DKNG) with a SPAC earlier this year.
But, many of the deals currently pending have been in the electric vehicle sector. For example, electric truck manufacturer Hyliion is merging with SPAC Tortoise Acquisition (NYSE:SHLL). Lordstown Motors is merging with DiamondPeak (NASDAQ:DPHC). There are other deals in the works as well, as Wall Street cashes in on the gold rush in both SPAC stocks and EV stocks.
However, as Barrons reported last month, the SPAC market may be deflating. With more opportunities out there for investors, SPAC stocks may make less epic moves than they have in the past few months.
In addition, EV stocks may soon start deflating as well. After soaring ahead of its stock-split, Tesla shares have sold off, falling from highs topping $502.49 per share, down to under $400 per share today. Nio has retained much of its recent gains, but has also headed lower in recent days.
And, in the case of SPAQ stock, shares have traded lower since the Fisker deal announcement. Trading for as high as $21.60 per share in July, shares today change hands around $13.50 per share.
But, looking beyond the dynamics moving SPAC and EV stock prices higher (or lower), the underlying fundamentals of the Fisker-Spartan deal suggest its too hard to tell whether this pending deal with produce solid returns for investors.
Jury’s Still Out Whether This Merger Will Pay Off
Will the acquistion of Fisker move SPAQ stock higher? Or will shares trade lower, due to both deflating interest in SPAC/EV stocks, as well of the company’s underlying performance?
It depends. On one hand, one positive of this transaction is the valuation at which it is being executed. As InvestorPlace’s Mark Hake wrote Sep 1, the pro forma pricing of the deal may mean the combined company will trade at a lower projected multiple than its peers.
This could help shares rally, as investors dive in thanks to the value proposition. Hake calculates shares could trade for as much as three times where they trade today if this scenario plays out.
On the other hand, it’ll be years before Fisker starts generating real revenue. As our own Tezcan Gecgil wrote Aug. 20, the company won’t be delivering its flagship Fisker Ocean electric SUV until late 2022 at the earliest. And, with the SPAC deal not closing until several months from now, this timeline could be extended.
Also, in the meantime, if investors lose interest in bidding up budding Tesla competitors, shares could still head lower. Even as the company moves closer to bringing a product to market. The implied valuation of the merger looks “cheap” in today’s EV bubble. But, if EV stock valuations fall closer back to earth, shares today could be pricey relative to the company’s likely results in the coming years.
Wait for EV Enthusiasm to Cool Further Before Buying
The Fisker-Spartan deal may pay off over the long term. But, today’s not the time to enter a position in EV stocks. Trading at frothy valuations, and with shares in the space trending lower in recent days, we may have already reached the near-term top for this emerging industry.
So, what’s the play? SPAQ stock may be a great opportunity if shares fall back to their offering price (around $10 per share). But, in the meantime, it’s best to take a “wait-and-see approach” for now.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Thomas Niel, contributor to InvestorPlace, has written single stock analysis since 2016.