Bet on the Jockey, If Not the Horse, with Pershing Square

Shark Tank star and angel investor Kevin O’ Leary is known for driving a hard bargain and picking only the best new ventures to invest in. Recently, he announced his backing of Pershing Square Tontine Holdings (NYSE:PSTH). That’s big news, but O’Leary’s not the only famous financial personality associated with Pershing Square stock.

A man holding two puzzle pieces surrounded by more, smaller puzzle pieces. SPAC IPOs
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There’s another well-known icon in the financial field who’s driving the buzz and anticipation surrounding Pershing Square stock, and I’ll reveal his name momentarily.

In analyzing Pershing Square stock, a number of questions will be raised. Does it make sense to invest in a special purpose acquisition company (SPAC) if you don’t even know what company is going to be acquired yet?

And, can a stock’s upward trajectory be sustained on the renown and reputation of a company’s founder? These are heavy questions, so let’s see if we can make some sense of the odd yet undeniable appeal of Pershing Square stock.

A Closer Look at Pershing Square Stock

As I alluded to earlier, Pershing Square stock is a SPAC stock. This means that it represents a shell company which will, at some point, acquire another company to help it go public.

Here’s where things start to get strange. Many investors have never heard of Pershing Square stock. Yet, on July 22, 2020, the Pershing Square initial public offering (IPO) represented the largest (dollar-wise) SPAC IPO to date.

In a year of numerous big-ticket SPAC’s, that’s really saying something. How was it possible that a $4 billion SPAC IPO could largely fly under the radar for so many traders?

I would venture a guess that it’s difficult to generate immediate buzz about a shell company without a clear direction or business model. Nonetheless, Pershing Square stock is starting to generate decent average trading volumes of more than 1 million shares per day.

As for the share price, it’s been on a gradual upward trajectory throughout much of 2020’s fourth quarter. The buyers kept Pershing Square stock above $25 on Dec. 11, so $30 would be a reasonable target for January.

A Jockey to Watch

Sometimes, stock buyers are betting on the jockey (the person running the company) more than the horse (the company itself).

And, to quote O’Leary, “If you’re going to buy a SPAC, make sure your horse and your jockey are proven winners.”

Referring indirectly to his backing of Pershing Square, O’Leary clarified, “The key to SPACs is the sponsor… I only buy the deals where I know the sponsor has been a player successfully in private equity.”

If anybody fits this description, it’s legendary activist investor Bill Ackman. For instance, in 2011 Ackman launched the blank-check company Justice Holdings, which then went on to acquire Burger King.

Afterwards, Ackman was instrumental in working out a deal to combine Burger King and other well-known brands under the Restaurant Brands International (NYSE:QSR) umbrella.

A Guessing Game

Since Ackman hasn’t publicly revealed Pershing Square’s merger target yet, investors are left to speculate on which company will be the lucky winner.

One clue we have is that Ackman has indicated he’s looking for a mature unicorn. A unicorn is typically defined as a start-up company worth at least $1 billion. Still, this could describe a broad array of companies today.

Companies that might or might not be under consideration include SpaceX, Bloomberg and Stripe. At one point, Ackman admitted that he had held discussions with Stripe regarding a possible merger with Pershing Square.

As the trading community continues to speculate about which firm Ackman will take public, it’s entirely possible that the anticipation will push the Pershing Square stock price up further.

In other words, the Pershing Square stock could benefit from the ongoing guessing game. However, this doesn’t mean that you should go all-in on the stock. Just keep the old saying in mind: “Buy the rumor, sell the news.”

The Bottom Line

The value proposition presented by Pershing Square stock is interesting, to say the least. In a sense, it could be said that the buyers don’t really know what they’re investing in.

And yet, they know who they’re investing in. Ackman’s reputation, by itself, gives Pershing Square stock its considerable value. So, even with the known unknowns, the man and the stock may be worth betting on.

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

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