The valuation of Churchill Capital Corp IV (NYSE:CCIV) has become much more realistic following its recent, sharp pullback. CCIV stock will open below $25 this morning but traded as high as $58 just a few weeks ago.
The pending merger with Lucid Motors is a great sign and shows a lot of future potential. Nonetheless, Wall Street is starting to understand that there is very tough competition in the electric vehicle (EV) sector.
The valuation of CCIV stock is still extremely high and growth names continue to be quite volatile.
Investors are starting to rethink competition within the EV sector. Auto heavyweights like Ford (NYSE:F) and GM (NYSE:GM) have entered the market. Ford’s electric Mustang Mach E in particular is drawing rave reviews.
Throw in the Chinese and American start-ups, some of which already have EVs on the market, and the sector really looks quite crowded.
I’ve warned that competition in the sector would be intense, but much of the Street is just starting to price that factor into EV stocks. I believe that is one of the key reasons why EV stocks have been weak in recent days.
The Valuation of CCIV Stock Is Still Huge
According to a Feb. 23 column in Seeking Alpha, Lucid’s implied enterprise value was $52.2 billion when Churchill’s shares were changing hands for $40 each.
Lucid’s implied enterprise value is still about $32 billion, an enormously high valuation for a pre-revenue automaker.
The enterprise value of Nissan is $73 billion. So if CCIV stock rebounds to an enterprise value of $52 billion and Nissan (OTC:NSANY) stays at its current levels, Lucid’s enterprise value would be 70% of Nissan’s.
InvestorPlace columnist Matt McCall agrees.
“Even today’s prices more than account for Lucid’s long-term potential,” he wrote. “Buying in at a premium, especially as accredited investors are getting in at lower prices ($15 per share) doesn’t look too worthwhile.”
More Downside Ahead
With interest rates climbing and herd immunity from the novel coronavirus imminent, many investors are fleeing the growth names that had dominated during most of the pandemic. During this transition, EV stocks, including CCIV stock, have been hit hard.
As the transition continues, I expect EV stocks to be quite volatile, and I think that most of the names in the sector will trend lower.
There are definitely reasons to like Lucid. The Dream edition of the company’s Air Sedan, its initial EV, will reportedly be able to drive more than 500 miles on a single charge.
More recently, the company disclosed that the Air’s owners will be able to add up to 300 miles of range in only 20 minutes thanks to a newly disclosed partnership. That is a quicker charging rate than any other EV according to Lucid.
The Bottom Line
With Wall Street becoming more skittish about EV stocks and CCIV stock still trading at stratospheric levels, I continue to recommend that investors sell Churchill at this point.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.
