If you like Foley Trasimene Acquisition Corp (NYSE:BFT) stock now, later I’ll show you a trick. How to get long BFT stock and leave room for error. But first the debate over its bullish viability.
Fintech is a an exciting business segment because it’s the way forward for asset transfers. That’s why the stocks of Square (NYSE:SQ) and PayPal (NASDAQ:SQ) have rallied so ferociously. Even the old dogs like Visa (NYSE:V), MasterCard (NYSE:MA) and American Express (NYSE:AXP) are breaking records.
In the last five years SQ and PYPL are up 1,900% and 480% respectively. Recently, these two have suffered setbacks but the whole sector remains very strong. The outlook for high-tech payment processing systems has never looked better.
This is what makes BFT stock also worth considering for a long-term investment. Bring some Dramamine because the ride has already been bumpy. It has had tall peaks and deep craters in its short public life.
Last year, we saw the dawn of the special acquisition companies (SPACS) like these. The pandemic put the digital revolution into high gear, which in turn launched a monsoon of hopeful entrants. These reverse mergers bring prospective companies to market and circumvent the traditional IPO process.
SPACS Are Tricky
This makes them dangerous investments because a lot of them have skipped the official vetting. Retail investors have to trust that the acquirers have done a good job. This is not to say that they are illegitimate businesses, but we’ve seen what happened with WeWork. Arguably, the best investment company made one of the worst mistakes that cost them tens of billions of dollars. Nikola (NASDAQ:NKLA) was another debacle and the outcome of that is still binary if it’s a fraud or not.
In this case, PaySafe is the business in focus. It might be new to Wall Street but it’s been around for a long while. This company fits right in this new world that has embraced the concept of blockchain. Secure, fast and anonymous payment methods are the hip way to go. Furthermore, the surge in e-commerce has also added exponential demand on electronic transactions. This is a sustainable trend, not a fad.
This online and in-store payment processing team now has access to a big money bag. Having a good purse makes it easier to execute on plans.
The new kids on the block like Square and PayPal are out-innovating Visa and MasterCard. This raises the likelihood that they will need to buy a boost. PaySafe and BFT stock could become acquisition targets. I don’t like to buy a stock speculating on a prospective bid. However, in this case I would also be investing in an up-and-coming company in a very fast-moving segment.
BFT Stock Has Many Tailwinds
There is no doubt that electronic payment processing is the way to go for the future. That’s one of the reasons that Bitcoin and the processes around it are on fire. Doing things the old way is clunky and inefficient. Moreover, we learned last year that reasons come up that force use to be remote. Businesses are now feverishly prepping for moments like the lock-downs. They will seek services like those of PaySafe.
Those who own BFT stock for the long term don’t worry about short-term generations. Nevertheless, buying it outright is a scary proposition, especially when volatility is so high. It moves very fast, which makes it very difficult to time right. Common sense most often keeps us from making mistakes.
For example, chasing BFT near $20 a couple of months ago was clearly not an obvious starting point. Those who did it are stuck down 25%. Last week, their losses were up to 35%. Buying after big dips like these makes a ton of more sense. In hindsight, that would have been a good entry point, but it’s not too late. It’s hovering in the middle of the recent range, so it’s OK to nibble.
The fundamental metrics are useless to us at this point. They won’t tell an actual story, so we have to make up our own. This, by definition, makes buying BFT shares a speculative bet on future successes. My rule for those is to keep the risk size small. It’s OK for it to break my heart but not my piggy-bank.
There Are Outside Risks
Technically, last week’s lows almost retraced the entire December rally except for one candle. There is still an off chance the bears could finish the job and hit $11 per share. In addition to BFT risks, there are some that stem from the markets in general. Volatility is high. That’s why the Nasdaq fell 3% one day and rallied more than 4% the next. This was without headlines, so anything can happen. Further corrections in the indices will also drag BFT with them.
If I plan on buying 100 shares, I would start with half at the most. I’m a big fan of leaving room for error. I am an even bigger fan of using options to do so. Here comes the promised play from the opening of this article.
In this case, instead of buying shares without any buffer, I would sell the October $10 put instead. This would make me long BFT stock with a break even price of $8.50. The drawback is that my maximum gains are finite at 10%. I am OK with this until the overall volatility abates. When that happens, I would add upside potential positions with stock or call options.
The Bulls Need to Retake Charge
The BFT stock chart suggests that the sellers are in control for now. Therefore, I expect resistance as it approaches $16 per share. The bulls can eliminate this by slogging through and rising above $16.50. There would lie their opportunity to take over the reins once again. Until then, I assume that the descending trend continues against the floor they just placed.
When the reverse merger happened, they expected a valuation much higher than this. Assuming that they know their own business, this leaves a lot of hope for the future. Speculative investments like this only makes sense if they are a small portion of a healthy portfolio. It is also important to avoid taking too many of them without current fundamentals. This is especially true when great mega-cap stocks like Nvidia (NASDAQ:NVDA), AMD (NASDAQ:AMD), Apple (NASDAQ:AAPL) and Square were on sale just hours ago. Given the choice between an oversold SQ or NVDA, I would definitely skip on buying BFT stock – even down here.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.