After running hot early last month, SPAC (special purpose acquisition company) stocks have cooled off as of late. Some of these SPACs have justifiably fallen to more reasonable prices. But, for others, like Gore Holdings VI (NASDAQ:GHVI) stock, investors have irrationally bailed out of shares.
How so? As you may know, GHVI chose Matterport as its merger partner. What’s Matterport? It’s a spatial data company, whose platform helps to create 3D “digital twins” of physical buildings. These “twins” have become a valuable tool for property appraisal, renovation projections and even pandemic-related “return to work” planning.
In short, it’s yet another “future of real estate” play — changing the game for this “old school” industry. With exposure to many trends, this company stands to gain massively. Now, as is par for the course for fast-growing companies going public via SPACs, initial valuation looks rich. But, when factoring in its projected growth between now and 2025, this looks more than reasonable. Especially after the stock’s 40% pullback from its post-deal announcement highs.
Overall, GHVI stock is one of the most interesting pending SPAC deals out there. Thus, now’s the time to take advantage of its recent weakness and buy the dip.
GHVI Stock and The Matterport Deal
Like I said above, Matterport is a “future of real estate” play. However, unlike other companies in this category, this one isn’t trying to “disrupt” an existing business model. Instead, it’s providing the real estate industry with a way to “digitize” their buildings.
There are endless uses for this data. It can be used for insurance appraisal. It can be used for renovation planning. You can use it to make operating properties like warehouses more efficient. This technology also can also be applied to real estate sales and leasing.
In short, it’s no shock Matterport so far has signed up more than 250,000 subscribers, across many segments of the real estate sector. And, that’s with only 1% total market penetration. With a total addressable market estimated by the company to be worth $240 billion, it’s clear plenty of growth remains in the coming years.
With a SaaS/recurring revenue business model, expect this to be a high-margin, cash cow business once it scales up. And, one worth many times the implied post-merger value of GHVI stock today.
Valuation More Than Reasonable
The flip side to growth opportunities is valuation. That is to say, you have to pay up when it comes to buying stocks with high levels of growth. Based upon the transaction summary provided in its investment presentation, that’s the case here for Gores Holdings VI, soon to be Matterport, stock.
What’s the current valuation of GHVI stock right now? Per the transaction summary, the combined company will have 291.5 million shares outstanding once the deal closes. Based on its current stock price, that’s an implied market capitalization of around $4.9 billion. Subtract $655 million in post-deal cash, and that gives us an implied enterprise value (EV) of around $4.25 billion.
Compared that to projected 2021 revenues ($123 million), and valuation looks steep. But, while nobody can call an enterprise value/sales (EV/Sales) ratio of 34.5x “cheap,” you have to keep things in perspective. Namely, sales are to expand to levels many times what they’re expected to be in 2021.
By 2025, Matterport could be generating $747 million in sales. This gives us an EV/Sales ratio of 5.7x. Projections may not be certain. But, even if it falls slightly short of projections, this remains a reasonably-priced opportunity.
And, that’s not all! Top line growth is just one part of the equation. We’ve seen lots of SPACs announce deals, using high sales growth to justify their current premium prices. Soaring revenues are a good thing. But, they don’t mean much, if they do not result in equally impressive bottom line results.
However, with its gross margins set to expand from 55% this year, to 73% by 2025, it’s clear this will be a highly profitable business at scale.
Bottom Line: Buy GHVI Stock Before the Matterport Deal Closes
After bidding up high-profile SPAC stocks earlier this year, investors have let go of the gas. But, with promising blank-check merger opportunities falling to more reasonable prices, it’s time to seize the opportunity. That’s the case here with Gores Holdings VI/Matterport.
Based on 2021 results, valuation may look a bit rich. But, as the company continues to scale up at an impressive clip, today’s valuation could look “cheap” in hindsight. With its high gross margin, and software-as-a-service (SaaS) revenue model, once scaled up, it could be worth many times what it current trades for today.
So, as shares hold steady at today’s prices, it’s time to pounce. Buy GHVI stock, before the Matterport deal closes.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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