Even as equity markets remain near all-time-highs, there is no lack of attractive investment opportunities. DiamondPeak Holdings (NASDAQ:DPHC) is yet another name among blank-check companies, also known as SPACS, that deserves a closer look. I am bullish on DiamondPeak stock, and I would not be surprised if the stock doubles in the next 24 months. Let’s take a look at the stock’s positive catalysts.
As an overview, DiamondPeak Holdings and Lordstown Motors entered into a merger agreement in August. The business combination is expected to be completed by the end of this year. In the wake of the reverse-merger news, DiamondPeak stock has already surged 140%. Investors can wait for a pullback before buying the shares.
Lordstown Motors designs and manufactures electric vehicles. As a result of the reverse-merger transaction, the company has $675 million of cash to fund its growth. The company’s first pickup truck is expected to hit the market by the end of its fiscal 2021.
The Electric-Vehicle Market Is Getting Fiercely Competitive
Lordstown will be facing a great deal of competition in the EV space.
To put things into perspective, automakers launched 143 new electric vehicles in FY2019. Further, companies plan to introduce around 450 additional models by FY2022.
Lordstown Motors’ first vehicle will be a pickup truck. Nikola Corporation (NASDAQ:NKLA) plans to launch its own pickup, Nikola Badger, in FY2022. Badger’s starting base price will be $60,000.
Tesla’s (NASDAQ:TSLA) Cybertruck is also slated to be launched in FY2021, and the pickup has generally been well-received. The Cybertruck will cost between $39,900 and $69,900.
Ford (NYSE:F) and General Motors (NYSE:GM) are also among the companies that will be launching electric pickups in the coming years.
Can Lordstown Motors Survive And Grow?
I believe that Lordstown Motors is well-positioned to grow despite its competition.
There are two main reasons to be bullish on the company.
First, Lordstown Motors is positioning itself as the only EV player that’s providing a full-size pickup which will primarily target commercial fleets. According to McKinsey, “commercial and passenger fleets in the United States could include as many as 8 million EVs by 2030 (compared with fewer than 5,000 in 2018).” This presents a big market opportunity for Lordstown.
Secondly, the company expects to charge $45,000 for its pickup, which it calls Endurance. If the vehicle’s price is around that level, the demand for it is likely to be robust. As a matter of fact, the company has received 40,000 pre-orders for the Endurance. With production expected to start in the second half of FY21, Lordstown’s order backlog will swell further.
The company is expecting to produce 31,600 vehicles in FY22. Furthermore, production is expected to increase to 107,000 vehicles by FY24. Given the 40,000 pre-orders, I believe that the company can realistically sell 107,000 vehicles in FY24.
An important point is that Lordstown Motors does not need to spend a great deal of capital in the next few years. Given its guidance for $600 million of EBITDA by FY24, the company is likely to generate positive free cash flow relatively soon after commencing production.
Of course, the risk to the bullish thesis is that several other players can enter the high-potential commercial and passenger fleet market. There is no barrier to entry for existing companies in the electric-vehicle industry. However, Lordstown Motors is likely to have a first-mover advantage in the space.
Final Thoughts on DiamondPeak Stock
Lordstown’s first electric vehicle won’t be commercially produced for several quarters. I expect DiamondPeak stock to cool off after its recent initial surge.
However, the shares will likely climb further if Lordstown’s pre-orders remain robust. The company’s manufacturing plant will probably have an initial production capacity of 600,000 vehicles. Therefore, significantly raising production as demand grows should not be challenging for Lordstown.
The company has already said that “ we do not expect that we will need any additional equity capital requirements to achieve positive cash-flow.” In other words, it claims that it will not need to sell additional shares before it generates positive cash flow. Assuming Lordstown is able to meet that goal, it would be tremendously positive for its shareholders.
Considering these factors, DiamondPeak stock is worth holding. I would not be surprised if the stock doubles in the next 24 months, particularly if the company’s pre-orders continue to swell.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector. As of this writing, Faisal Humayun did not hold a position in any of the aforementioned securities.
