In the coming years, renewable energy is set to replace fossil fuels and Switchback Energy (NYSE:SBE) is leading this trend. While the shift to clean energy is still a long way, the company is working to make this a reality soon.
Earlier this year, SBE announced its merger with ChargePoint, a leader in the electric battery power space. The date of the merger remains unknown but is expected to happen before January 15. Investor enthusiasm for SBE stock is at a high this year, currently in the $40s from a low of $13 in November.
Why Do Investors Love SBE Stock?
There is little reason not to believe that the future will be completely electric. From Tesla (NASDAQ:TSLA) to Nio (NYSE:NIO), electric car-makers are heating up the auto market and scoring some major wins for investors. But, when it comes to investing in an electric-powered future, SPACs like Switchback Energy have a lot to offer as well. SPAC (special purpose acquisition company) is a shell corporation that takes companies public without the bureaucracy of a traditional IPO. This allows investors to invest in public companies at a lower level of risk.
The merger between ChargePoint and Switchback is especially timely given the dominance of electric energy today. ChargePoint operates one of the biggest vehicle charging stations and controls 73% of the North American market. With the adoption of electric energy in homes and cars across the world, the company estimates that its shipments of charging stations will grow 10-fold by 2026. This growth potential is a major reason why investors are throwing their support behind the SBE and ChargePoint merger.
Prior to the deal, Switchback Energy had an impressive valuation of $1.5 billion. This number is set to spike to $2.4 billion when the merger closes. With high investor enthusiasm in the EV market, the new company will see some big gains in the years ahead.
A Bullish View On Switchback Energy
SBE’s momentum this year has many investors largely bullish on this stock. The company’s share price spiked from $9 to $44 over the span of the year. This increase can be attributed to a strong rally in the electric vehicle market. With more electric car models slated for release next year, charging stations like those offered by ChargePoint will power higher as well. The company has ambitious plans to add 2.5 million charging stations by the end of 2025.
In the bullish camp, Switchback received a ‘buy’ rating at a $50 price target from Wolfe Research. The firm sees a 20% upside potential in the stock. Since SBE is not public yet, it is hard to determine future growth levels. However, the general sentiment towards investments in the electric battery and vehicle market is fairly optimistic. But it’s also worth noting that stocks that experience unprecedented gains tend to rebound at a moment’s notice. Adding to this is the volatile quality of stocks in the EV market.
Investors should consider buying SBE stock but also proceed with caution. Stock prices are at an all-time high right now so there is an element of risk involved, i.e. a reversal in the upward trend reverse. Nevertheless, Switchback’s strong business model makes it a worthy investment.
The Bottom Line
SBE stock is a great play for investors looking to get into the EV market. While the company does not compete directly with the likes of Tesla and Nio, its charging stations will play a huge role in the rise of electric cars. Moreover, Switchback’s strong position in the market, post-merger will only add to the stock’s impressive gains this year.
Looking ahead, SBE has a huge potential for growth. According to the company, charging stations in the U.S. will be worth over $60 billion in the next 10 years. This puts SBE in a great position to benefit from the more widespread adoption of electric cars in the future. This stock is a worthy investment but I would wait for prices to go a little lower before taking the plunge. Investors that own shares in the company will see some volatility in the future.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.