Churchill Capital (NYSE:CCIV) stock has become emblematic of the special purpose acquisition company (SPAC) boom and bust.
Churchill will be merging with electric vehicle (EV) maker Lucid soon. Traders were so excited for Lucid that they bid CCIV stock up to $65 at one point.
Then the company did a fundraising deal at a far lower price and shares crashed. CCIV stock shed half its value in a single week once the company raised cash at a disappointing valuation.
CCIV stock has continued to tumble since then; shares are now off more than two-thirds from the February highs. Yet, nothing much has changed in the bigger picture.
At least as far as Lucid goes, the business’ prospects are not meaningfully worse than they were two months ago. That makes it worth taking a fresh look at the situation today.
Success Hounds CCIV Stock
In isolation, CCIV stock is actually still one of the bigger winners of the SPAC boom. After all, shares are trading for $20, which is a solid premium over the $10 initial offering price.
By comparison, numerous EV SPAC companies now trade under $10. Nikola (NASDAQ:NKLA), for example, broke that mark on Tuesday before rallying, and Lordstown Motors (NASDAQ:RIDE) recently hit $9. Meanwhile, Canoo (NASDAQ:GOEV) has fallen to as low as $7.50 for a quick 25% loss from its offering price before bouncing.
In comparison to all that, CCIV/Lucid still trading around $20 is hardly a disaster. Still, for anyone that bought at the height of the excitement, shares are down sharply. Unlike, say, Lordstown or Canoo, however, nothing dramatic has gone wrong with Lucid aside from its valuation deflating from an inflated peak.
Lucid presented a valuation case at its February investor presentation. The main pitch suggested that Lucid is compelling because it trades for 2% of the value of Tesla (NASDAQ:TSLA) (based on Tesla’s then-current price). Here’s the catch. Lucid based that calculation on the $10 SPAC offering price.
Meanwhile, traders would soon bid CCIV stock, which will become Lucid, to a post-merger valuation of $102 billion. Our Vince Martin ran through all the math and highlighted the main points.
Needless to say, a company that isn’t yet producing revenues boasting about a $102 billion value was an incredible moment.
Tesla has a market capitalization of around $700 billion. At its height, Lucid was worth roughly 15% of Tesla despite not delivering vehicles yet. That’s rather generous.
Now, however, Lucid is back to a much more defensible level. Not only has the share price come down, but some dilution has disappeared as well.
The SPAC founders received warrants on 44 million shares of CCIV stock. These and can be converted into stock at strike prices ranging from $20 to $30.
Long story short, at $30+, you’d have a flood of new stock hitting the market eventually. Down here, however, there should be less dilution.
CCIV Stock Verdict
Two months ago, investors were giving the benefit of the doubt to every single EV stock out there. Now, that’s flipped on its head.
Everyone is dumping the EV stocks without doing much fundamental research or evaluating between their comparative prospects. As Martin demonstrated, CCIV stock was absurdly priced at $60 but at $20, the math is much more appealing.
I agree fully; if you were waiting for an entry point, now is the time to give Lucid your attention.
It’s too easy to let the price action drown everything out. When the price is going up, it seems to validate the story. When the stock drops, it makes folks think something must be wrong with the business.
Sometimes, though, volatility is just noise. Despite the huge drop in CCIV stock, Lucid’s prospects aren’t meaningfully worse than they were a few months ago.
While a lot of the EV stocks probably won’t ever recover to their old peaks, there are some bargains setting up in the higher-quality names. Lucid is arguably one of those top-tier options.
Just two months ago, after all, traders were viewing Lucid as a serious Tesla competitor and pricing shares accordingly. Since then, very little has changed for Lucid’s prospects fundamentally. That sets up an interesting trading opportunity.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.