It’s been a rough few weeks for SPAC (special purpose acquisition company) investors. And that includes those long Tuscan Holdings (NASDAQ:THCB) stock. Following its announced deal to merge with EV battery play Microvast, and the overall euphoria for EV SPACs, THCB stock was flying high. At one point, the share price topped 25 per share, 150% above its offering price.
But now, as the EV SPAC bubble has apparently popped, Tuscan and its peers are heading in the wrong direction. Now at around $13.75 per share, shares are falling toward a more favorable entry point.
However, while the price is starting to look right, shares could see more declines in the short-term. Previously, investors were willing to buy EV SPAC stocks at any price, based on projections alone. But now, they’re looking at them with a more critical eye. That’s going to make any sort of recovery difficult, even as there are near-term factors that could give it a boost.
So, what’s the best move now? Wait for lower prices before entering a long-term position.
THCB Stock Pops on Pending Microvast Deal
Back in February, this SPAC made public its plans to acquire Microvast. Investors quickly dived in, chomping at the bit to buy this EV battery maker focused on the commercial vehicle market. However, this surge had more to do with EV-stock FOMO and not this company’s fundamentals. With so many EV SPAC stocks rising 3x, 4x, or even more from their offering prices, those late to the game were looking to join in on the fun.
As EV SPAC stocks sell-off, this stock no longer has mania on its side. Yet, on the flip side, could this mean THCB stock has finally come back down to a more appealing valuation? That depends. On one hand, when you consider the numbers provided in its merger presentation, today’s prices could look like a can’t-miss deal in hindsight.
How so? At $13.75 per share, its implied post-merger valuation stands at around $4.1 billion. Factoring in net cash ($600 million), its current implied enterprise value is around $3.5 billion. Compared to projected sales over the next few years, that looks a bit frothy. But, compared to where this company could be by the start of the next decade (projected sales of $6.8 billion), valuation starts to look more than reasonable.
On the other hand, while its long-term prospects appear strong, this may not be enough to counter the across-the-board sell-off in this sector. In short, shares may more likely to head lower before they start to rebound. Yet, even as investor sentiment toward EV SPAC stocks trends negative, there may be a near-term factor that could send Tuscan Holdings, soon to be Microvast, stock, back in the right direction.
Could an Unforeseen Development Slow Down The Pullback?
Today, Tuscan Holdings may be reasonably priced, considering how much its merger candidate could grow in the coming years. But, with EV SPACs trending lower, it’s going to tough for this stock to go in the other direction.
As is par for the course with SPACs, a major weakness for THCB stock is that so much of its value is based on its potential performance many years down the road. If results start falling short of projections, or if investors get inpatient for this growth story to finally pay off, this previously overbought stock could quickly become oversold.
Yet, while most of its value remains based on results many years down the road, a short-term catalyst could help send it back to higher prices. Interestingly, it has to do with the recent United States Postal Service (USPS) Next Generation Delivery Vehicle (NGDV) contract decision.
No, I’m not talking about a partnership Microvast may have had with Workhorse (NASDAQ:WKHS), which lost the bid in a crushing defeat. Luckily for us, its exposure comes via Oshkosh (NYSE:OSK), the company that won that multi-year, possibly multi-billion dollar deal.
Oshkosh may have won out by offering a largely gas-powered fleet. But, with its bid including the option of battery-electric vehicles, it’s going to need a partner to supply the batteries. With the established truck maker one of the PIPE (private investment in public equity) investors in this SPAC deal, it’s possible Microvast will be that partner.
Wait for Things to Play Out Before Buying
Following its sell-off, it’s hard to say whether further declines are around the corner. Or, if this stock is ready to rebound. The popping of the EV SPAC bubble points to lower prices ahead. But, near-term positives like its possible exposure to the USPS NGDV deal, could reinvigorate interest in THCB stock.
While near-term factors could help support the stock, a continued sell-off looks more likely. Wait for the SPAC stock correction to wrap up before buying THCB stock.
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.