Last month, I took a bit of risk when I took a cautious approach on Apex Technology Acquisition Corp. (NASDAQ:APXT). You know this as the special purpose acquisition company (SPAC) that will take Software-as-a-Service specialist AvePoint public. Fundamentally, APXT stock represented one of the most highly anticipated de-SPACs. However, the market had other plans.
At its peak price this year, APXT stock was just a dime under $18. But since early February, shares went on to hemorrhage red ink all over the charts. Between Feb. 3 and when I gave my take on April 21, Apex Technology shares dropped 34%, just three pennies shy of $11. Considering that SPACs often have a listing price of $10, you’d figure there wasn’t much room to fall.
At least in the case of APXT stock, you would have been wrong. With shares priced a few ticks above $10 at time of writing, the misery has continued to compound for Apex. It compels me to ask, what the heck is going on?
From my standpoint, I don’t see anything glaringly wrong with AvePoint. While I think the biggest fundamental challenge for APXT stock is the threat of competition in the crowded cloud data storage and management sector, AvePoint offers clients many advantages.
As its website notes, the company is the largest Microsoft (NASDAQ:MSFT) 365 data management solutions provider. By migrating, managing and protecting data to “secure Microsoft cloud and SharePoint collaboration,” AvePoint greatly reduces the friction involved in the digital ecosystem.
Further, because of the dramatic changes that the novel coronavirus pandemic imposed, America’s work environment may never look the same. On the surface, this seems to support the narrative of APXT stock. So why have shares been crumbling?
SPAC’d Out of APXT Stock
I’m probably going to take a lot of heat for this, but I think a great many investors piled into names like APXT stock because they were SPACs. They didn’t bother reading into the company’s business, its industry and its prospects. Instead, they just wanted to know one thing.
SPAC, you say? Yes please!
But do I have proof of the above assertion? No I don’t, and that’s going to draw criticism. Nevertheless, we have evidence that investor sentiment over the last 14 months was nowhere near as rational as it used to be.
For instance, remember when Zoom Technologies (OTCMKTS:ZTNO), which once sported the ticker symbol ZOOM, skyrocketed in March of last year? People mistakenly thought that Zoom Technologies was Zoom Video Communications (NASDAQ:ZM). So if these post-pandemic investors didn’t have the good sense to research what company they’re buying, is it that much of a stretch to assume these same folks bought SPACs just because they were SPACs?
Another piece of evidence is the choppiness of the SPACs themselves. Again, it just seemed that millions of young investors rushed into SPACs without researching their nuances. Yes, these blank-check firms bring more opportunities to the public market. But they’re compensation traps.
From the sponsor typically receiving 20% equity in the combined entity to the warrants — oh, the warrants! — SPACs are a different breed of IPO (initial public offering). Their poor performance (ghastly in some cases) this year suggests widescale irrationality or ignorance of many of their buyers.
Again, while I can’t prove it, I believe that SPAC fever contributed to the decline of APXT stock. Moreover, I’m not entirely sure that Apex Technology Acquisition will make a comeback.
No More Ammunition Left
If you ask me, it appears that the fervor for speculation has died out. For instance, many young investors who bought into SPACs undoubtedly also participated in the cryptocurrency market.
Take a look at those charts. They’re downright hideous.
The mood now is to deleverage from risk-on assets, whether that be SPACs, cryptos or any other hyped up asset. Factor in the stock trading on margin which hit yet another record in April and you’ve got a situation where people are ready to panic out of their positions while they still can.
Should that happen, I don’t think investors will want to deal with SPACs. It’s unfortunate because certain names like APXT stock should be given a chance. But this is the nature of the beast. I’d continue avoiding Apex/AvePoint if I were you.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
