Tortoise Acquisition II (NYSE:SNPR) is one of the most recent ways to play the electric-vehicle (EV) charging trend. The special purpose acquisition company (SPAC), which will soon merge with charging company Volta, may not be as well known as Chargepoint (NYSE:CHPT). But, its current under-the-radar status could make SNPR stock a great opportunity.
That’s especially true after its tremendous pullback of late. The stock soared to as much as $18.33 on news of the Volta deal. But, as investors have reassessed their enthusiasm for this sector, it has pulled back. Now it trades for about $10.30 per share, not much more than its initial offering price.
Diving into the details, though, it’s clear investors have overreacted here. Yes, it’s a long road ahead for this early-stage company. But, with its unique business model and projections of breakeven EBITDA in the next year, there may be more behind Volta than runaway optimism.
So, with investors missing the opportunity currently, what’s the play? Buy now, before the deal closes. It may be seen as an “also-ran” right now. But, in the long-run, Volta could become a winner in this space.
SNPR Stock and the Big Opportunity with Volta
As competition heats up in the EV-charging space, what makes SNPR stock so special? Sure, there’s nothing particularly unique about Volta’s focus on placing charging stations at shopping centers and other retail properties. Other names are going with this approach as well.
But, with a business model built on multiple streams of revenue, it may be able to turn its charging stations into cash cows way before the competition. Yes, just like Chargepoint, it’s going to make money via recurring fees from the charging location. But, over time, revenue from ads displayed on its stations will become major revenue sources, too. Revenue will also come from the sale of user data.
With this approach, the company could become highly profitable while at the same time operating far fewer stations. Another way to look at this? Volta doesn’t need aggressive adoption of EVs to make its business model work. Even if the growth in charging demand is lower than expected, it could still live up to today’s expectations.
And, with the stock reasonably priced relative to its potential, there’s even more reason to take advantage of the recent pullback. Sure, as a growth story, valuation looks frothy right out of the gate. But, with much in place to turn its vision into a reality, today’s prices may end up looking like a “can’t miss” opportunity in hindsight.
Reasonably Priced for a Charging Stock
Potential is one thing. But, what matters more when it comes to buying a growth stock is getting in at the right price. Finding reasonably priced stocks in fast-growing industries can be difficult. However, while SNPR stock is by no means cheap, its current valuation may be one of the most reasonable compared to rivals.
How so? Taking a look at the transaction overview, the stock will have 203.1 million outstanding shares (Page 51). At $10.30 per share, this gives us an estimated market capitalization of around $2.1 billion. Subtract the approximately $600 million in net cash from the transaction and we get an enterprise value of around $1.5 billion.
Let’s compare this to current and future results. Based on estimated 2021 sales ($47 million), a $1.5 billion valuation looks frothy, no doubt. But, with its top line projected to soar to $826 million by 2025, today’s valuation starts to look more rational.
And that’s not all. Revenue growing at a breakneck pace is one thing. But, unlike some of the other charging companies out there, Volta already has high gross margins. And, with said margins set to increase, it’s not only set to hit breakeven EBITDA in the next year. By 2025, it could have EBITDA margins of 30%, with around $252 million projected for that year (Page 48).
Considering its growth will still be in motion four years out, shares would likely trade at a fairly high EBITDA multiple. Let’s call it 15 times. That gives us a $3.78 billion valuation for the business five years out. In other words, more than double its current enterprise value today.
Contending to Be a Winning EV Charging Stock
Most investors may want to find the EV charging upstart that winds up dominating when it comes to market share. But, with its “more money from fewer locations” game plan, this dark horse contender may be the stronger investment opportunity.
This reasonably priced growth stock’s potential may outweigh downside risk in the long-term. Yet, that’s not to say that we won’t see additional downward moves in the short-term. Nevertheless, after its recent weakness, consider SNPR stock a buy with its Volta merger still pending.
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, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.