Other investing trends may now be in the limelight. But, SPAC (special purpose acquisition company) stocks remain hot. And, one in particular that’s been getting heavy attention is Churchill Capital Corp IV (NYSE:CCIV) stock.
Why? Shares skyrocketed in early January, as rumors circulated of this blank-check company choosing electric vehicle (EV) startup Lucid Motors as its acquisition target. A maker of luxury EVs, some have speculated Lucid could give established industry leader Tesla (NASDAQ:TSLA) a run for its money.
But, while shares have more than doubled on the news, said deal isn’t set in stone. Since hitting prices topping $27.30 per share, CCIV stock pulled back, as concerns mount its potentially game-changing deal could get delayed. Or worse, not happen at all.
Those who got in this SPAC early are sitting on some nice gains. But, for those who didn’t get in early, is it too late to profit from this opportunity?
It depends. Investors considering a position at $30 per share should exercise some caution. With this blank check company’s shares going parabolic on the aforementioned deal rumors alone, you could see heavy losses if a deal doesn’t get announced. But, if shares pull back below $23, a more favorable entry point could emerge. So, what’s the best move? Take a wait-and-see approach for now.
CCIV Stock and the Possible Lucid Deal
Churchill has neither confirmed nor denied it’s in talks to buy this early-stage luxury EV maker. But, with some starting to cast doubt, let’s assess the odds of this deal getting delayed and/or not happening.
First, a delay is possible, given recent developments related to Lucid’s largest shareholder. Saudi sovereign wealth fund PIF (Public Investment Fund) owns 67% of the privately-held EV maker. That alone doesn’t impact the chances a deal goes through. The PIF has expressed interest in taking this company public, whether via the traditional route, and through a SPAC merger.
But, with PIF looking to have Lucid build a production facility in the Saudi city of Jeddah, this may push the much-discussed possible deal onto the back burner. For those looking to profit on CCIV stock, this may not be the worst thing in the world. Why? If the deal takes months longer than expected, impatient speculators could start exiting positions. If shares fall back to around $15 per share, a more attractive entry point could emerge.
And, with regards to the deal talks winding up a nothing burger? The jury’s still out. Lucid’s chairman, Andrew Liveris, already has ties to Churchill, and its sponsor, Michael Klein. This minimizes the chances that a SPAC sponsored by Chamath Palihapitiya, or another big name in the space, snaps this up ahead of Churchill.
That being said, it’s still possible Lucid opts out of going public for now. If this deal is no longer on the table, don’t expect shares to remain at current price levels. With a potential sell-off back to $10 per share (its offering price), buying in today doesn’t look appealing from a risk/return standpoint.
Current Premium Not Worth It
A few month back, a SPAC stock would only surge once it made a deal announcement. But now, with so much money chasing opportunities in this space, the potential for deals has become sufficient enough to move the needle.
And, that’s the situation here with CCIV stock. Investors have put the cart before the horse, and have priced-in the possible Lucid merger as if its a done deal. This could limit the potential for additional gains if a deal actually gets announced. Instead of doubling once again, shares may only slightly rally.
This small amount of upside is more than countered by big potential losses if the aforementioned deal doesn’t happen. Sure, failure to lock down this company as its acquisition target isn’t the end of the world for Churchill Capital IV. As InvestorPlace’s Will Ashworth detailed on Jan. 31, the principal of this SPAC’s sponsor (Klein), could be a jockey worth betting on. It’s too early to read much into his track record. But, Klein is shaping up to become one of the leading investors in this space.
However, while this factor may help soften the blow, Klein’s investing talents aren’t enough to sustain the current premium priced into shares.
Monitor the Situation, But Hold Off Buying for Now
The jury’s still out whether a Churchill-Lucid deal is going to happen. With this potentially game-changing transaction uncertain, it’s not worth diving in at today’s prices. Shares are only up on the aforementioned deal talk. If said deal rumors fail to pan out, expect shares to sell-off significantly.
Yet, don’t take CCIV stock completely off your radar. If the deal’s still a possibility, but shares fall back to the $10 to $15 price range, risk/return may again be in your favor.
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.