Shares of DiamondPeak Holdings (NASDAQ:DPHC) enjoyed an impressive run in September, rising 84% during the month to an all-time high of $31.80 per share. DiamondPeak stock was driven higher on news that it its taking electric truck maker Lordstown Motors public by year’s end through a special purpose acquisition corporation (SPAC).
However, the initial euphoria surrounding the Lordstown Motors deal appears to have worn off. Since peaking on September 21, DiamondPeak stock has fallen 40% and now trades at just under $20 a share.
Investors shouldn’t expect DiamondPeak’s share price to rise higher anytime soon and may want to avoid the stock altogether until the dust settles on the Lordstown Motors SPAC listing.
A Hot Trend Drives DiamondPeak Stock
SPAC deals such as the Lordstown Motors one are all the rage on Wall Street this year as a number of companies sidestep traditional initial public offerings (IPOs) in favour of reverse mergers with SPACs such as DiamondPeak.
Despite a global pandemic, in 2020, more than 50 SPACs had been formed in the U.S. as of August 1, raising a combined $21.5 billion through their share sales.
Other companies to list shares on major stock exchanges through SPAC deals include Virgin Galactic (NYSE:SPCE), DraftKings (NASDAQ:DKNG) and another electric truck manufacturer, Nikola Motor (NASDAQ:NKLA).
SPAC companies such as Virgin Galactic, DraftKings and Nikola have proven to be popular among investors and day traders on the Robinhood platform. Virgin Galactic, DraftKings and Nikola have each seen their share price rise sharply only to tumble lower.
It’s similar to what happened to DPHC stock after the Lordstown Motors deal was announced. DiamondPeak’s share price jumped 63% on the news before peaking and falling in recent weeks.
Momentum for SPAC deals and the companies behind them has been hard to sustain. Investors seem to be fickle when it comes to SPAC companies, buying them on their debuts and dumping them shortly afterwards.
A Crowded Market
Once the Lordstown Motors deal is done, investors need to ask themselves what comes next? Electric vehicles, like SPAC deals, are hot right now, but the market for companies making electric vehicles is getting more crowded by the day.
Since DiamondPeak announced that it is taking Lordstown Motors public, two other electric vehicle-related SPACs — Graf Industrial and Tortoise Acquisition — have been announced. Plus, established automakers are speeding into the electric vehicle market with their own products that are aimed at taking market share from established leaders in the space such as Tesla (NASDAQ:TSLA) and China’s Nio (NYSE:NIO).
Lordstown Motors will be entering an overheated and extremely crowded market of players who are all trying to grab the attention of investors.
Also to be considered is the fact that Lordstown Motors remains a very speculative company. While Lordstown Motors has announced plans to manufacture an electric pickup truck called the “Endurance,” it hasn’t manufactured anything yet.
Citing the speculative nature of Lordstown Motors business, CNBC commentator Jim Cramer recently disparaged the company and urged investors to trim their holdings of the company. DiamondPeak stock took a 10% hit after Cramer’s comments.
DiamondPeak stock also suffered a blow after electric truck rival Nikola was accused of fraud in a short-seller’s report that was released Sept. 10. To be sure, Lordstown Motors does have a manufacturing facility in place and claims to have tens of thousands of pre-orders for its Endurance pick-up truck. But a lot could go wrong between now and when the first trucks roll off the assembly line.
Hold off on DiamondPeak Stock for Now
If the Lordstown Motors deal goes well and the company has a successful debut on the NASDAQ exchange when it begins trading under the ticker symbol “RIDE,” then investors can consider buying shares. But it’s foolish to invest in DiamondPeak stock ahead of the Lordstown SPAC deal being completed.
There are too many electric vehicle companies similar to Lordstown Motors that are also coming to market this quarter and Lordstown Motors is too unproven a company to make a big bet on right now. Let the SPAC deal get done and see how the stock performs before investing your hard earned money.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.