In a market flooded with SPACs (special purpose acquisition companies), Churchill Capital IV (NYSE:CCIV) stock has been one of the hottest ones out there. After rumors began to circulate in January about its intentions to make EV (electric vehicle) startup Lucid Motors its target, investors sent shares to the moon.
Rapidly rising from its $10 per share offering price, this blank-check company reached prices nearing $65 per share. But, once the rumors became confirmed, investors cashed out in a big way.
Falling 38.6% on Feb. 23 alone (when the deal was officially announced), CCIV shares have been in a downward slide in the weeks since. Today, the stock changes hands at around $25 per share, more than 60% below its all-time high.
Yet, while investors may see the opportunity to “buy the dip,” caution remains the keyword here. Why? First off, this deal is fully priced-in, even when accounting for the stock’s recent plunge. In addition, as the valuations of established EV leaders continue to contract, further declines (rather than a rebound) is more likely in the short term.
That’s not to say then this isn’t a great opportunity at the right price. There’s plenty on Lucid’s side to make it a potential winner in the coming years. But, as the dust has yet to settle, wait for lower prices before giving this another look.
Why CCIV Stock Could Fall Lower
Churchill Capital IV shares may have sold off massively on the heels of the Lucid deal announcement. Valuation today is a bit less frothy than it was just a few weeks back. So, does that make today’s prices reasonable? I wouldn’t go that far.
In fact, even today’s prices more than account for Lucid’s long-term potential. Compared to other EV startups, it may be one of the most promising. It could eventually leave the established names in the luxury EV space in the dust. But, for this to be a great opportunity, the price needs to be right.
Buying in at a premium, especially as accredited investors are getting in at lower prices ($15 per share), via a PIPE (private investment in public equity) transaction, doesn’t look too worthwhile. It’ll be many years until this pre-revenue company starts producing tangible results. Even compared to projections (more below), valuation still looks stretched here.
Add in the risk of additional valuation contraction, and even at $25 per share, CCIV stock has more room to fall before it becomes reasonably priced. When will this happen? As valuation multiples contract across the sector, another move lower for shares could be just around the corner.
As EV Valuations Contract, What’s Lucid Really Worth?
Long-term trends remain fully on the side of electric vehicle makers. But, following the sector’s performance over the past year, investors are reassessing valuations across the board. Even after double-digit percentage declines for the main U.S. and China-based leaders in this space, prices could continue to fall in the near term. Again, that’s not to say these aren’t great long-term opportunity. But, as the short-term trend changes direction, it’s best not to fight it.
So, what does this have to do with Churchill Capital IV, soon-to-be Lucid, stock? Per its February investor presentation, the company will have around 1.6 billion shares outstanding after the deal close. At today’s prices, that’s an implied valuation of around $40 billion.
Subtract the $4.4 billion in post-deal cash, and it’s implied enterprise value today stands at around $35.6 billion. Compared to its projected 2022 revenues ($2.2 billion), that’s a rich multiple. Its current implied enterprise value may be reasonable compared to future projections ($22.75 billion in 2026, for example). Yet, there are two things to keep in mind.
One, given these are projections, from periods far down the road, there needs to be a sufficient discount, given the uncertainty. It may have what it takes to become a winner right out of the gate. But, there’s still a chance it falls short of expectations once it starts producing/selling vehicles in full force. Two, valuation looks reasonable compared to projections, so shares will continue to move in tandem with other EV plays. If valuations continue to contract, that’s bad news for those buying CCIV stock following the sell-off.
Bottom Line: Wait Things Out With Churchill Capital IV
Some may see now as the time to enter a long-term position in this SPAC. But, it remains more than “priced for perfection.” Only time will tell whether it truly becomes the next big thing in electric vehicles.
At the same time, as Wall Street starts valuing EV stocks at lower multiples, it’s going to be hard for CCIV stock to bounce back. With the potential for shares to dip further, it’s best to take your time, and wait for the dust to fully settle.
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 the article.
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