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CIIG Merger May Be a Short-Term Victim of Last Year’s Success

What we know about CIIG Merger (NASDAQ:CIIC) explains the 182% climb in CIIC stock. It’s not only a play on the electric vehicle (EV) sector; it’s yet another special purpose acquisition company (SPAC) that has become the preferred way of bringing a company public. In this case, the company is Arrival.

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Arrival has a nifty niche in the EV sector. It’s not trying to slug things out with companies like Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO) in the passenger car sector. Rather, it’s looking at a bigger picture. And by bigger I mean mass transportation. The company is going to manufacture electric buses.

Mark Hake writes that CIIC stock may be fully valued … unless it’s not.

Matt McCall has written that all EV stocks have tended to rise, but at some point the bubble will burst.

The point I’m trying to make is that all of what’s known about Arrival may well be factored into Arrival’s stock. And while stocks tend to rise prior to emerging from their IPO, they can go down afterwards just as fast.

So while you may be interested in buying CIIC stock, prudence may be warranted to make sure the weak hands leave the stock.

Stocks Don’t Move in One Direction

Forgive me for stating the obvious. However, it’s central to my thesis about CIIC stock. Since announcing that it was taking Arrival public, CIIC stock has dropped over 20% twice. And since Dec. 30, the stock has dropped an additional 19% as of this writing.

Now none of these dips are too concerning to investors when they were sitting on a 100% gain (at worst). And I agree with Hake’s assessment that the stock may have further to climb even in the absence of any news.

But what a stock will do and what it should do are different things.

The Irresistible Force and the Immovable Object

In formulating my opinion about CIIC stock, I found two interesting points from my fellow InvestorPlace writers. One was from Tezcan Gecgil, who cites statistics from Virta that in 2018 there were 460,000 electric buses in use throughout the world. That was up nearly 100,000 from the prior year. And the information from Virta also mentioned that European Union nations can now publicly procure electric buses. So that would seem like demand exists in the electric public transport market that Arrival is attempting to meet.

This was juxtaposed by an insight provided by Josh Enomoto, who points out a Wall Street Journal article that reports that more New York City dwellers are turning to private cars in part due to a fear of mass transit.

So it does seem that there are two dynamics going on. On the one hand, you have governments taking a larger hand in the electrification of public and (eventually) private transit. On the other hand, the novel coronavirus is driving the same people (directly or indirectly) to stay away from public transit.

The good news appears to be that vaccines offer tangible hope. The bad news is that the hope we all want is several months away from being a reality. That means is that there is no guarantee Arrival will begin manufacturing vehicles by the end of the year. Of course it doesn’t mean it won’t hit its target, either.

And that will-it-or-won’t-it dynamic will decide the future of CIIC stock.

CIIC Stock Will Test Investor Conviction

At some point, CIIC stock will emerge from its IPO. When it does, it will have to deliver regular guidance. That’s where reality may set in. The company has a profit target of 2023 with an order book that projects to over $1 billion in sales.

When that happens, it will be interesting to see what investors choose to do. Arrival is benefiting from the convergence of the two hottest investing trends in 2020: EVs and SPACs. But at some point, hype has to give way to facts. And investors have tended to move from one red-hot stock to another.

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

Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.

Article printed from InvestorPlace Media,

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