Churchill Capital Corp IV (NYSE:CCIV) is a special purpose acquisition company (SPAC) that has been making headlines recently. CCIV has also likely delivered huge gains to many investors, with a massive rally from $10 in early January to a 52-week high of $64.86 within a few weeks.
At the same time, though, this stock has delivered huge losses to the investors who bought it near that 52-week high. Soon after, a selloff occurred. Today, the stock changes hands at nearly $19. That’s a decline of 71% from the 52-week high.
So, what’s the story behind CCIV stock now? Here’s what you should know.
CCIV Stock: Do Not Get Too Excited by SPACs
I’ve written two articles about CCIV stock before and both of them have some common features.
In February, I wrote that rumors of an acquisition target were not a solid reason to buy the stock. Essentially, CCIV was too speculative at that point. Then, later in March, I wrote about the downsides of the stock with its merger target — Lucid Motors — revealed. Mainly, I contended that Lucid Motors was “joining the party too late” when it came to electric vehicles (EVs).
In that latter article, my verdict was as follows: “Nothing has changed yet for CCIV stock. It’s both too risky and too expensive […] Instead, be patient and wait for actual results. Jumping into the stock now would just be pure speculation.”
Today, it seems like my financial analysis has proven correct, at least for now. CCIV stock is far off its 52-week high. But that’s just par for the course when it comes to SPACs for me. After all, I have expressed my dislike of them before; they get too pricey on enthusiasm alone, ignoring true fundamentals and moving too fast too soon.
Now the U.S. Securities and Exchange Commission (SEC) seems to agree with my opinion, too. One interesting article from Markets Insider noted that “The SEC is reportedly weighing stricter rules to rein in the wild projections made by SPACs.” It also mentioned some of the following key points:
- “The SEC is considering new guidance to rein in growth projections made by listed SPACs”
- “Investor advocates say the wildly optimistic forward growth projections SPACs can make pose a risk”
Of course, this is bad news for SPACs and CCIV — after all, these companies have a tendency to present optimistic, best-case scenarios. For example, the projections of Lucid Motors’ position in the niche EV market face a huge problem: in the years to come, the market won’t be so niche anymore and mainstream automotive names will have plowed in.
At some point in the future, it seems that the majority of cars will be electric. So, what will Lucid Motors’ position be then? Outside of assumptions and projections, the answer is we don’t know. That’s why I’m still hesitant with CCIV.
Lawsuits and Huge Stock Volume Collapse
What’s so interesting about the allegations against CCIV? The lawsuits focus on the period between Jan. 11 and Feb. 22, mentioning that “If you purchased Churchill Capital securities during the Class Period you may be entitled to compensation without payment of any out of pocket fees or costs through a contingency fee arrangement.”
This is the same time frame wherein CCIV hit its all-time high. On Feb. 18, the stock reached a 52-week high price of $64.86 per share. It then declined rapidly with a huge selloff. In exactly a week later, on Feb. 25, it closed at $27.82. That’s a drop of about 57% within one week.
Basically, these lawsuits are about misleading statements related to the actual delivery of cars. As one Yahoo! Finance article notes, “Lucid was not prepared to deliver vehicles by spring of 2021 […] projecting a production of 557 vehicles in 2021 instead of the 6,000 vehicles touted in the run-up to the merger with Churchill.” This is very serious, if true. As a result, the SEC would be able to impose a significant fine on Churchill Capital.
Lastly, though, there’s a crucial factor outside of the allegations that is affecting my financial analysis. What else could possibly make me more bearish on CCIV? Recently, the volume of the stock has collapsed, from 55.7 million shares on Apr. 26 to just 9.7 million on May 10. This tells me that the enthusiasm around CCIV stock is quickly disappearing, too.
CCIV Stock Verdict
When it comes to CCIV stock, my worries about speculative enthusiasm and joining the EV party too late still stand. However, now I have additional concerns as well.
Namely, these lawsuits are too important to ignore; I am very worried about the misrepresentation of material information which, as far as I can tell, helped cause that impressive February spike in the CCIV stock price.
Altogether, this stock remains highly speculative, risky and far too pricey. My previous conclusion remains the same: avoid CCIV until true fundamentals cause justifiable excitement.
On the date of publication, Stavros Georgiadis, CFA, did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.