Special purpose acquisition companies like Switchback Energy (NYSE:SBE), have been making headlines in 2020. In late September, SBE stock had a fast run-up to an all-time high of $16.45.
The reason? On Sept. 24, it announced a reverse merger with privately held ChargePoint, an electric vehicle (EV) charging network with operations in North America and Europe.
On Oct. 8, Kyle Bass’ Hayman Capital Management used Twitter’s (NYSE:TWTR) platform to disclose a 9.08% stake in SBE stock. “With 4,000 commercial customers, 62% of the Fortune 50 are using ChargePoint,” he said. “As electric vehicle penetration accelerates, the network effect of the largest charging network will come into play.”
The deal, which values ChargePoint at $2.4 billion, is expected to close by the end of the year. Today, we will discuss what investors can expect from the upcoming merger and the SBE stock in the coming quarters. If you are not yet a shareholder, you may regard the dips in price as opportunity to go long in the stock.
A Different Route to the EV Sector
In addition to the pandemic-related volatility in broader markets, 2020 is likely to be remembered for the growth in SPAC mergers with firms involved in the EV and alternative energy sector. SPACs are blank-check companies that raise money through an IPO to usually buy a privately held firm, typically within two years.
For private firms, these reverse mergers offer an easier and faster route to go public. However, not all SPAC deals become successful.
InvestorPlace.com readers would be well familiar with several of these recent reverse-mergers:
- DiamondPeak (NASDAQ:DPHC)
- Hennessey Capital Acquisition Corp IV (NASDAQ:HCAC)
- Hyliion (NYSE:HYLN)
- Kensington Capital (NYSE:KCAC)
- Nikola (NASDAQ:NKLA)
- Spartan Energy Acquisition (NYSE:SPAQ)
There are also recent additions to the EV space through the more traditional IPO route. Many analysts concur there may be a bubble fast brewing in this space. Markets have been regularly welcoming alternative energy vehicle firms that are in most cases pre-revenue.
However, SBE stock may be somewhat different than many of these companies. The reverse-merger partner ChargePoint offers around 118,000 public charging locations. It builds the hardware as well as the IT technology to power the network. Through ChargePoint Home, customers can also charge in their homes or on the go.
The company is regarded as a leader in this space, with drivers plugging in to the ChargePoint network every 2 seconds on average. The Campbell, California-based group has partnered with hundreds of companies to offer charging solutions.
A recent study Dale Hall and Nic Lutsey of Washington-based International Council on Clean Transportation highlights, “Global electric vehicle uptake has grown an average of over 60% per year from 2013 to 2018, to about 5 million light-duty electric vehicles on roads around the world. Public charging infrastructure has also grown an average of over 60% annually over the same time period, reaching 600,000 charge points at the end of 2018.”
ChargePoint and hence SBE stock may expect to benefit from the expected growth in EV charging stations worldwide. However, it is too soon to tell when the new entity will be generating profits.
Should You Buy SBE Stock Now?
Most blank-check companies like Switchback Energy initially trade between $8 and $10. When the rumor mill begins to operate about a potential merger, the stock usually moves up. If a deal is announced, the share price usually skyrockets. Afterwards, choppiness kicks in.
On Sept. 15, SBE stock closed at $10.45. The next day, it hit an intraday-high of $ 13.71. The reverse merger was announced on Sept. 24 when the shares closed at $12.44. On Sept. 28, shares hit an all-time high of $16.45 before slipping to its current level near $14.50.
Although the Street loves alternative energy sources and vehicles, the industry could be somewhat crowded. However, SBE stock may offer a niche in the sector and deserves to be on your radar. Following the deal closure, it’d be important to see how operations will evolve and quarterly financial metrics will come.
I expect the ride in SBE stock to be volatile, but with potentially a long-term upward bias. Investors with a time horizon of two or three years and who are eyeing potential growth stocks may consider buying the dips in the shares.
The stock offers a high risk/return proposition. The new company could also become a takeover candidate.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing.