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Fisker Has Taken Off Like a Rocket Since Merger. Can It Last?

InvestorPlace readers, please give a warm round of applause for our very own Mark Hake. Mark boldly predicted that Fisker’s (NYSE:FSR) share price could shoot up by 160% after completing its merger with Spartan Energy Acquisition Corp., the special purpose acquisition corporation formed by Apollo Global Management (NYSE:APO) in August 2018 to target a North American energy business.

Electric car concept in green environment.
Source: Shutterstock

Well, Fisker’s share price hasn’t quite hit 160% appreciation since its Nov. 29 merger, but it’s come pretty darn close, up 95% in 10 days of trading through Nov. 13.

If you bought Fisker when it was trading under the symbol SPAQ just days before its merger, you were able to pick up the stock for less than the Aug. 9, 2018, issue price of $10 a share. 

Not a bad two-weeks pay for absolutely no work other than pressing a few buttons.

In some respects, the easy part’s already been done. Investors rarely get a double in such a short period. The tough part for average investors is deciding whether to take your profits and not look a gift horse in the mouth, or buckle in for the ride of your life. 

Is the Fisker Ocean SUV the next Tesla (NASDAQ:TSLA) or Ford (NYSE:F) Edsel? We’ll find out in the next 12-24 months. 

In the meantime, let’s consider both sides of the argument.

FSR Stock Is Ready to Rock

As I said in the introduction, my colleague is very high on Fisker, valuing its shares at $39, if not more. He believes that the merger starts the clock ticking on its manufacturing process, which ultimately will lead to deliveries of Fisker Oceans in late 2022.  

“The SPAC merger process seems to facilitate EV companies like Fisker in moving their manufacturing programs forward. This is what Henry Fisker, the Fisker CEO, recently told Barron’s in a podcast about the future of automobiles,” Hake wrote on Oct. 13. 

“Seeking Alpha recently summed up the podcast interview with Fisker. Interestingly, he said that ‘the SPAC process raises funds right away, making it easier to ink a deal with a manufacturing partner.’ In other words, it allows the company to immediately move forward with its plans.”

And it doesn’t hurt that the merger brings Fisker $1 billion in cash to pay for those plans. 

As for myself, I wrote in late September that it was a buy under $14 for speculative investors. It proceeded to fall to a 52-week low of $8.70 over the next month until the merger put some wind behind its sails. 

“Once it merges with automotive startup Fisker Inc.,” I wrote on Sept. 28, “I suspect it won’t take long to get to $20.”  

As I write this, its shares are over $18 in pre-market trading. I suspect momentum investors will drive its shares above $20 by the end of November. 

Will they stay above $20 is the million-dollar question. 

Fisker’s Ready to Crumble

Not every InvestorPlace contributor is enthusiastic about Fisker’s future. 

Matt McCall believes that the odds are long for Fisker to navigate the minefield that is automotive manufacturing successfully. Richard Branson joked that if you wanted to become a millionaire, start with a billion dollars and launch a new airline. The same idea could easily apply to a new automotive company. 

“But history offers a lesson. Automotive manufacturing is not easy. Competition will be intense, with established ICE (internal combustion engine) manufacturers developing their own electric fleets, and electric-only rivals beating Fisker to the punch,” McCall wrote on Nov. 4.  

“Notably, automotive manufacturing is capital-intensive as well. Fisker’s own business plan suggests that nearly $800 million of that cash will be used up before the start of production.”

Clearly, it will need to find more capital in the next year to finance the actual production of its vehicle once it’s ready in late 2022. 

Right now, Fisker is basking in its merger glory, but the hard work hasn’t even begun.

InvestorPlace contributor Larry Sullivan believes only the most risk-tolerant investors should buy Fisker shares right now because the volatility is high and will likely remain so for some time. 

That’s why I’ve been very careful to remind readers that while I believe Fisker is a speculative buy, average investors might play it safe by investing in Magna International (NYSE:MGA), the mammoth auto parts supplier that’s signed on as Fisker’s manufacturing partner. 

It has a nice 2.7% dividend yield that you can collect while waiting for Fisker’s journey to become a little more certain.

The Bottom Line

As a glass-half-full kind of person, I like to think that Henrik Fisker learned a thing or two from his first foray into automotive manufacturing — Fisker Automotive went bankrupt in 2013 — enough to understand that it might be better to leave the actual building of cars and trucks to people like Magna while focusing on the design and marketing in-house. 

It’s an asset-light business model that’s rarely, if ever, been successful. But someone has to break the mold if meaningful change is ever to become a reality. 

If you’re a risk-averse investor, I wouldn’t consider Fisker until trading in the low teens or high single digits. Even then, it might be more risk than you’re realistically capable of withstanding.

As for speculative investors, once it hits $20, I’m not sure there are any catalysts in the near-term to drive it higher. I’d wait for a better entry point. 

That said, long-term, I think Fisker’s a winner. 

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

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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