If Charles Dickens were in charge of naming investments, you have to wonder whether he’d change the moniker of DiamondPeak Holdings (NASDAQ:DPHC) to DiamondPeaks And Valleys. It’s been that kind of month for the special purpose acquisition company (also known as a SPAC). DiamondPeak stock hit a high of $31.40 per share (Sept. 21), fell more than 30% three days later, and rallied back again to just pennies below $27 per share.
One thing’s for sure: DiamondPeak won’t be around much longer as we know it, which as SPACs go is a good thing. When the dust settles on its reverse merger with Lordstown Motors Corp., a builder of electric light duty trucks, the new company will adopt the Lordstown name and trade on the NASDAQ under the ticker symbol RIDE.
Expect that to happen sometime in the fourth quarter.
For now, investors in DiamondPeak stock have some time to ponder a mystery that if not worthy of Dickens, then at least the pocketbook of Scrooge or far more benevolent financial types.
To wit: Is getting in on the ground floor of this future electric vehicle company a good thing? Or given the cautionary tale of Nikola (NASDAQ:NKLA), would shareholders run the risk of confusing the next electric truck with a bandwagon?
DiamondPeak Stock and Lordstown’s Road Back
You don’t have to be an investor to root for DPHC’s efforts. For while Lordstown Motors takes its name from an Ohio village of just 3,300 people, it has also taken over a local auto plant that at its peak in the early 1990s employed more than 10,000 people. Lordstown Motors, it is hoped, will put local workers back on the lines.
General Motors (NYSE:GM) closed the Lordstown plant after the last Chevy Cruze rolled off the line in March 2019. But where others saw an empty colossus, Lordstown Motors CEO Steve Burns saw colossal opportunity.
His company bought the plant and if Burns makes good on the 27,000 advance orders for Lordstown’s Endurance pickup truck, GM will look about as savvy as the space freaks who designed the AMC Pacer. After all, GM cast its fate with Nikola and that hasn’t exactly turned out well. Ya think?
And in the era of the media darling tech CEO, Burns is about as opposite of disgraced Nikola founder Trevor Milton as they come. Burns’ business suit of choice is an outdoor jacket vest over a no-frills dress shirt. He could easily pass for an assembly line worker in a get-up like that.
But make no mistake: He was savvy enough to scoop up an auto manufacturing facility that takes up an astounding 6.2 million square feet. With its retooling, Burns may already be leagues ahead of competitors.
And to be fair, Burns knows how to wear a suit for a fancy occasion, as he did when he showed off a Lordstown Endurance pickup at the White House on Sept. 28. The president sounded mightily impressed by the vehicle, which sports 20-inch wheels and 7,500 pounds of towing capacity. Was he lying? Now that’s a loaded question.
An Electric Sector
When an investor buys into a burgeoning sector, it will often prove hard to tell substance and momentum from smoke and mirrors.
For years, many wondered if that was the MO of Tesla (NASDAQ:TSLA) and the swashbuckling Elon Musk; he pumped out rosy sales projections far faster than his plants produced cars. Tesla has since survived some substantial challenges, but continues to exhibit episodes of share volatility. Its precarious price-to-earnings ratio hovers at more than 1,000-to-1.
Without a manufacturing and sales track record, DiamondPeak stock can only be judged on scant metrics and one of them—irrational investor exuberance—is about as reliable as the Zoltar Fortune Teller machine (which, I will admit, boasts low fees).
As for facts that don’t cost a quarter to coax from a glass box, Burns might be familiar to some as the founder of Workhorse Group (NASDAQ:WKHS), which I’ve also written about.
As of April, he owned more than 18,000 shares of that electric vehicle company, though Workhorse is small potatoes compared to what Lordstown could soon become. Workhorse just reaffirmed previous production and delivery targets of 300-400 vehicles in 2020 in its Q2 report.
Taking DPHC on a Test Drive
By contrast, 27,000 in sales for the Endurance could lead $1.4 billion in potential revenue. And who knows? Maybe that figure will jump by the time the vehicle hits the streets in 2021. But caveat emptor: The current sales projections are based on $100-per-vehicle deposits made by consumers.
There’s no telling how many of those paltry down payments will show any endurance, if you will.
DiamondPeak also plans to sell something besides cars and that’s a larger vision for economic renewal. Rarely does a Rust Belt city get such a timely second chance, as Lordstown Motors has dubbed it “Voltage Valley.”
Maybe that’s wishful thinking. But if Lordstown can crank out tough, eco-friendly pickup trucks—that, unlike Nikola’s creations, actually pull out of the concept stage and onto highways—it will be one inspiring story.
Should it inspire an investment? As with any new vehicle leaving the lot, take extra care as you pull into traffic. There’s no need to speed or drive recklessly. If all goes well, you might just make that green light up ahead.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.