TPG Pace Beneficial Finance (NYSE:TPGY) is an interesting pick-and-shovel play in the electric vehicle (EV) space, especially after falling the stock has fallen substantially from its February highs.
Closing at $16.79 per share last Friday, it is trading at an almost 51% discount to its 52-week high. However, there are still legitimate fears that the stock may crash back to the $10 per share level.
One thing is for sure, as we move closer to the merger date, short-term catalysts will start to fade towards the background, with company-specific catalysts taking center stage.
Moreover, now that the stock is finally trading at a discount, one can make an objective analysis regarding its clear set of catalysts for growth.
But first, it’s important to unpack a few things. First, when buying TPGY, you are actually purchasing EVBox, a provider of smart charging solutions for EVs.
Considering the red hot nature of the space, it should come as no surprise why TPGY is attracting such interest before the eventual tie-up between the two entities.
Broadly speaking, there are two ways to play the stock. One is to have a short-term approach. There are still some catalysts available for you to exploit.
The merger is yet to be approved by the merger by TPG Pace shareholders. And, of course, the merger hasn’t closed, nor has the new ticker started trading. All catalysts for upward price movement.
But now we come to the more interesting question, whether this stock is a long-term investment. On that end, there is potential in terms of both revenue and margins that you can exploit.
TPGY Stock: Primed for Success
In December, Pace Beneficial agreed to purchase EVBox Group from their parent company Engie New Business S.A.S, in a deal that valued the target company at an implied $969 million enterprise value.
Since that time, the stock has had its fair share of highs and lows. Due to the general euphoria surrounding the space, shares lifted to highs of close to $35. But they have since corrected substantially.
Part of that has to do with a delay in the merger. In the past six months, we have seen investors take profits from the mad rush of SPAC mergers in the electric vehicle space and target traditional investment areas that will do well once the broader economy starts whirring again.
Hence, you can feel the anxiety creeping in for investors that have stayed long on stocks like TPGY in the hopes of more catalysts.
However, if you are still invested, I would advise continuing to have some faith.
Several EV charging plays such as EVgo (NYSE:CLII), and Blink Charging (NASDAQ:BLNK) are trading at substantial premiums to the EVBox/TPGY tie-up.
It’s still early days for the Netherlands-based company. And it does not have a sizable presence in North America at this time.
However, EVBox is looking to change this. The company forecasts revenue growth of 74% CAGR from 2020 to 2023. And a major part of these projections is North American revenue.
The company also plans to develop mobile software that will help drive margins higher. At the moment, the Everon EV charging app allows users to get find charging stations nearby. However, the complexity of these mobile offerings will improve with time, leading to a diverse line of both hardware and software options that consumers can utilize.
All things considered, EVBox has plenty of positive catalysts even after the merger closes.
What Are the Risks?
Investing in the EV space will always come with its own set of risks. Although the enthusiasm is somewhat warranted, the entire EV charging sector is overvalued.
Countries worldwide have to spend billions before there is viable EV infrastructure that can support the vast influx of EVs. Matt McCall was right on the money when he said, and I quote, “Electric vehicles aren’t going to take a small slice of the automotive industry. They’re going to be the automotive industry, though obviously that process will take time.”
So, investing in TPGY stock requires a lot of patience. Also, since the sector is still finding its feet, the competition will heat up soon enough.
Companies like EVBox will need to keep evolving to ensure it stays one step ahead of its peers. That will require a lot of finance. And for that, the company will have to keep tapping the equity markets, leading to inevitable dilution.
If you weigh the pros and cons, TPGY stock is an interesting investment in a high-growth space. However, if you are a day trader, there are a few catalysts available for you to exploit.
And if you are more of a passive investor with a buy and hold strategy, then EVBox deserves a small position in your portfolio. There are strong tailwinds here that will allow this growth story to multiply.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence.