Putting it simply, it looks to be too late to dive into Pershing Square Tontine (NYSE:PSTH) stock. Sure, the special purpose acquisition company (SPAC) has yet to announce its merger partner. But, shares today are priced as if a deal’s already been announced. With so much hype priced-in, PSTH stock at today’s prices (around $26 per share) may have little room to run from here for several reasons.
First, this SPAC, sponsored by billionaire investor Bill Ackman, isn’t going to buy the kinds of high-flying upstarts other SPACs have pursued as of late. Ackman’s acquisition criteria differ greatly from other SPAC impresarios, such as Chamath Palihapitiya. In turn, this means shares have less of a chance of going parabolic once a merger partner is announced.
Second, SPAC stocks are in the midst of a bubble. After their mostly-blockbuster returns in 2020, investors are diving into the sector on FOMO and momentum. Because of this, major blank check stocks now trade at frothy premiums.
Third, Ackman may find a “mature unicorn” to buy at a fair price. But, that doesn’t guarantee even sufficient returns in the coming years. Stock price performance could still underwhelm. Even if his more conservative investing criteria minimizes the risk, this SPAC crashes if (not when) the overall bubble bursts.
In short, there are plenty of reasons why buying this SPAC (whether as a brief trade or as a long-term investment) isn’t the best move at today’s prices. So, what is the best move? If shares pullback, the situation could change. But, for now, continue to sit on the sidelines.
PSTH Stock Differs From Other SPACs
In my prior article on Pershing Square Tontine, I detailed the ins-and-outs of this blank check company.
Here’s a brief recap: With $7 billion at his disposal, Ackman is looking for a “mature unicorn.” In other words, a privately-held startup worth at least $1 billion. But, while valuable startups like SpaceX and Stripe have been floated as possible takeover targets, this SPAC may be considering a deal to buy a more established privately-held company. Something like Bloomberg LP.
The bottom line is, don’t expect PSTH stock to go parabolic once Ackman chooses a merger partner. That is to say, this isn’t the next Churchill Capital IV (NYSE:CCIV), which has soared on rumors it is going to buy EV startup Lucid Motors.
As a result, the additional runway for this SPAC is much more limited. And, while downside risk appears less severe than with more hyped blank check names, it’s no slam dunk that Pershing Square Tontine will generate worthwhile returns in the coming years.
Don’t Buy PSTH Stock at Today’s Prices
Some may be interested in buying PSTH stock to make a quick buck once it announces what privately held company it’s going to buy. Others may be taking a more long-term view. They might want to buy and hold this SPAC, confident Bill Ackman uses this vehicle to acquire a wonderful business at a fair price.
Yet, based on where shares trade today, there’s little reason to pursue either strategy. As I discussed above, this SPAC isn’t one that likely to parabolic on deal news. And, with regards to the long-term case? At $29 per share, you are paying a big premium for the opportunity to invest with Bill Ackman.
While mostly known as an activist hedge fund manager, Ackman has experience operating SPACs. But, as InvestorPlace’s Tom Taulli wrote Jan. 21, the long-term returns for his last blank-check venture, which became Restaurant Brands International (NYSE:QSR) stock, didn’t exactly set the world on fire.
Given the returns of the S&P 500 (NYSEARCA:SPY) during the same period, you would’ve been better off buying the index. To be fair though, QSR stock’s underperformance has been mainly due to the pandemic. Before 2020, shares had been performing well relative to the S&P 500.
If PSTH stock falls back, though, there may be an opportunity. Especially once we know what exactly this SPAC is going to buy. But, for now, there’s not much reason to buy this.
Bottom Line: Remain on the Fence
With SPAC stocks performing well in the past year, it’s understandable why some are interested in Pershing Square Tontine. But, unlike the SPACs striking deals with the hottest upstarts out there, this one is looking for established targets.
That could mean less risk when the SPAC bubble pops. Yet, as seen from the performance of Bill Ackman’s prior SPAC, blockbuster long-term returns are far from guaranteed. In short, as shares linger near $25 per share, remain on the fence with PSTH stock.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.
