Churchill Capital IV (NYSE:CCIV) stock has seemed to have found its floor at around $20 per share. It may be holding steady now. But, that doesn’t mean it’ll continue to do so. Especially once this special purpose acquisition company (SPAC) completes its merger with Lucid Motors.
Lucid may have a shot of supplanting Tesla (NASDAQ:TSLA) as the hottest EV maker out there.
Yet, the rising competition from both incumbent automakers and other upstarts coupled with the fact Lucid remains far away from starting production suggests it may be a bit too early for these assumptions.
If more investors agree and cease to be as willing to price in a rich premium, shares could easily pull back further. Back towards its offering price ($10 per share). And perhaps, as seen briefly with other EV SPAC plays, like Fisker (NYSE:FSR), fall down to single-digit prices.
That’s not to say there’s no long-term bull case to be made for Lucid. If it lives up to expectations, it could give the current crop of luxury EVs a run for their money. Until we see further developments, though, it may be best to view this stock as a “wait and see” situation.
High Expectations Priced into CCIV Stock
So, what’s the latest with this popular SPAC play? The biggest event as of late has been Lucid’s User Experience (UX) event. This event may have showcased many of the appealing features of the upcoming Lucid air. Yet, investors did not seem too impressed, as seen from the stock’s post-UX sell-off.
The reason? As some have noted, you can chalk it up to the dashing of inflated expectations. That is, disappointment that the company isn’t about to announce a partnership with Apple (NASDAQ:AAPL), a potential catalyst that is still largely factored into this early-stage company’s implied valuation.
Speaking of rich implied valuation, as I previously discussed, the main issue with CCIV stock is that it’s priced as if its “zero to sixty” projected growth will go off without a hitch. Specifically, Lucid needs to go from selling zero vehicles today, to selling 251,000 vehicles by 2026.
It’s not that impossible for this to happen, but with the EV megatrend accelerating, demand may be hot enough for such a scenario to play out and that’s just one side of the coin.
Lucid’s not only competing against Tesla, but other luxury car markers throwing their hat into the EV ring. Considering this factor, it’s hard to be confident that such rapid growth will occur.
Without this kind of parabolic growth, it’s going to be tough for shares to hold onto their current valuation much less make a stunning recovery back to past highs.
Downside Risk After the Merger
Forget about CCIV stock roaring back above $60 per share. The real question you should ask yourself is, “how low can it go?” Will this stock, like other EV startups such as Fisker, fall toward its initial offering price once the deal closes?
At first glance, some may say comparing Lucid to Fisker isn’t apples-to-apples. Lucid has a much greater war chest ($4.4 billion) as well as technological advantages on its side. Yet, it’s not as if Fisker doesn’t have its own “ingredients of success.”
Fisker has many factors on its side that make it a strong EV play. Even so, that hasn’t kept investors from bidding it down. Especially as they shift from a “buy at any price” to a “wait and see” mentality.
This shift has started to happen with CCIV stock. With major success still years away, doubt and impatience could set in further, helping to put more downward pressure on shares.
In turn, this could result in soon-to-be Lucid stock falling down to single digits, even if just temporarily. Considering the greater chance that happens, as opposed to shares making a stunning comeback, buying now while the waters are calm may not be a worthwhile move.
Bottom Line: It’s Best to Take Your Time
As shares hold steady at around $20 per share, some may see Churchill Capital IV as a buy right now, ahead of the deal close. Over a long enough timeframe, it may be possible to buy today, hold, and exit at a substantial profit, if Lucid ends up living up to expectations.
In the near-term, though, shares have more of a shot of pulling back further on disappointment, than gaining on renewed optimism.
If factors like the potential partnership with Apple stop getting priced into shares, and investors realize that, for now, Lucid has more in common with Fisker than it does with Tesla, CCIV stock could continue to slide from here.
On the date of publication, Thomas Niel 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.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
