Caution Is Warranted After Fisker’s 100% Spike

Joe Biden’s election win has set off a gold rush in the clean energy space. Look at solar, look at lithium and, in particular, take a glance at electric vehicle (EV) stocks. They’re all soaring. And perhaps no one company defines this trend more than Fisker (NYSE:FSR). Just since Nov. 6, shares are up 48%. That includes a 16% surge last Friday.

The Fisker logo hangs on display at the November 2011 International Auto Show.

Source: Eric Broder Van Dyke / Shutterstock.com

This all makes sense in a way. Traders are looking for companies that will see the biggest benefits from the change of policy direction in Washington D.C. And in a company like Fisker, you have as much blue sky as possible. Since the company has no current commercial-scale operations, near-term revenues or anything else like that to worry about, it’s possible to focus entirely on the company’s future vision.

SPAC Merger Closing Was the Catalyst

I can’t state this enough: Fisker’s shares have truly experienced an incredible move over the past few weeks. As recently as Oct. 30, Fisker was just $9 a share. Now that price is on its way to doubling. Surely there must be powerful fundamental news driving this surge?

Well, there is some news. For one, the special purpose acquisition company (SPAC) deal finally closed at the end of October. Recall that Fisker previously wasn’t an independently traded company. Rather, traders had been buying Spartan Energy Acquisition Company, which had traded under the ticker symbol “SPAQ” and had launched at a $10 price. While shares were volatile, SPAQ ultimately settled back around $10 just prior to the Fisker deal’s completion.

Then, on Oct. 30, the Spartan/Fisker merger closed and trading moved to the current FSR symbol. This appears to have kicked off a more favorable environment, as shares have gone virtually straight up since the deal was finalized. There could be good reason for that, as SPAC deals tend to have impatient shareholders that are only there to make short-term flip trades around the deal. Now, it seems, more long-term capital is flowing into Fisker.

A Long Road Ahead

And in one way, it’s certainly a positive that the merger is closed. Having the SPAC red tape dealt with makes everything more simple and understandable in terms of valuing Fisker’s shares going forward.

Now, however, the waiting game begins. There’s still very little to report in terms of Fisker’s near-term plans because this is such a young company. The company has nothing going yet in terms of major revenues. In fact, it doesn’t even plan to start production of its Ocean electric sport utility vehicle (SUV) until late 2022. Thus, Fisker’s main business will be taking $250 deposits for the Ocean until production gets going.

Some consumer deposits are better than nothing, of course, but there’s really not much on the schedule yet for prospective shareholders. Thus, Fisker’s short-term outlook is going to be dictated more by the mood around other EV and green energy stocks than the company’s own merits.

The Verdict on FSR Stock

Fisker has some promising features. For example, now with the merger closed, Fisker has $1 billion in cash, giving it plenty of money to ramp up its operations. Still, as our David Moadel recently wrote, investors should watch the competition with a wary eye. With EVs being such a hot market right now, tons of start-ups are competing for the first-mover advantage. Fisker should be early enough to carve out a decent niche in the SUV space, but with the Ocean still two years from launch, it’s possible that Fisker could fall behind other rivals.

In any case, just since September, Spartan Acquisition — now Fisker — has gone from $17 to $9 and back to $16. This is the sort of wild volatility that you can expect when a company has little more to show the world than a charismatic founder and some compelling sketches of a future vehicle. With nothing tangible to judge in terms of operations, Fisker’s share price will be bound to massive swings in the coming months.

That can be highly profitable for a nimble trader. As it stands right now, however, caution is advised. The stock has just run up nearly 100% in a few weeks. With a roller coaster stock like this, you should generally be thinking about taking profits after such a favorable run.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.


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