Shares of the special purpose acquisition company (SPAC) Churchill Capital Corp IV (NYSE:CCIV) were continuing to fall the day after the company confirmed speculation that it was bringing Lucid Motors public. As of this writing, CCIV stock was down for the day. This brings the total drop in the stock to more than 50% since closing at over $57 prior to the announcement.
The term “casino stocks” has become popular, and CCIV is a good example. Shares of CCIV stock closed as high as $58.05 per share since announcing that they were in pursuit of a merger partner.
Since that merger partner was widely expected to be Lucid Motors, it seemed to justify investor exuberance.
There could be a few reasons. First institutional investors now see the hard numbers. Second, there is a broader market selloff (and maybe some weak hands). However, there is now a situation where both bulls and bears can benefit from exercising patience.
Was It Just Bad Timing?
CCIV stock took a substantial drop after the announcement was made. In the immediate aftermath, one suggestion was that some investors are selling now that they’ve seen the numbers.
A specific concern that I’ve seen raised is that Churchill shareholders will collectively own 16.1% of the new company. Churchill’s market cap is down slightly from the $10.9 billion it was at yesterday. But that still gives the post-merger company a fairly steep valuation of around $68 billion.
Many analysts preached caution about CCIV even if Lucid was the target. One reason for that caution was the lack of numbers. So I’m a little skeptical that analysts are that surprised by the news.
This may just be a case of bad timing, and CCIV stock is falling because investors are in a selling mood.
Traders May Have Won This Round
On the other hand, there could be another explanation. In early February, Sarah Smith wrote an article for InvestorPlace that quoted Amrith Ramkumar, who was writing for the Wall Street Journal.
Ramkumar provided anecdotal evidence that day traders who were looking for their next GameStop (NYSE:GME) were becoming increasingly attracted to SPAC stocks like CCIV.
On the day Smith’s article dropped, CCIV stock closed at $25.20. The night before the merger announcement the stock closed at $58.05, a gain of 130%.
No explanation is that simple, but it is interesting to see the stock fall nearly 40% after Churchill Capital and Lucid Motors confirmed the merger. It could be that some investors saw an opportunity to take profits off a trade that served its purpose.
CCIV Stock Looks Like a Good Buy
I last wrote about CCIV stock in early February. I was advising caution largely because things happen. Lucid Motors looks to be about the surest bet you could make in the electric vehicle sector. But the teams with the most talent don’t always win championships. Sometimes “dream teams” disappoint.
However, if you were bullish on Lucid before the announcement, there’s really nothing here that should make you less bullish. Right now, you hold the line and consider adding to your position when you think the price is right.
The problem really comes in for the people who just got in to make a quick buck. If you bought CCIV at its peak, and didn’t get out yet, holding on may be a tough call. The selling pressure may intensify as long as the broader market is selling off.
The good news for you is that the bulls seem committed so the stock should eventually make its way back up.
I’m not making a prediction for Lucid. I’m simply not assuming the best-case scenario is a certainty. You’re welcome to do that, and hopefully, the share price will reach a profitable level no matter which side of the trade you’re on.
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.