Gore Guggenheim (NASDAQ:GGPI) is a special purpose acquisition company (SPAC) poised to merge with Swedish electric vehicle (EV) maker Polestar. As I wrote in my last article, GGPI stock looks like a good value here, especially if the market moves its value metrics higher once the deal closes.
GGPI stock has fallen from its peak price of $15.33 on Nov. 16 down to $11.25 as of Tuesday, Dec. 21. That represents a decline of 26.6%. That presents an opportunity for investors now that the company is waiting to close its merger with Polestar.
For example, on a “see-through” basis (as if the reverse merger with Polestar has closed) GGPI has a market valuation of $24.89 billion. This is based on the company’s slide deck presentation. On page 37, it shows that there will be 2.125 billion shares outstanding. So if we multiple yesterday’s price of $11.25 by that number we get its “see-through” market cap.
Where This Leaves GGPI Stock
One of the unique things about Polestar is that it is already producing electric vehicles (EVs). In fact, it made 10,000 EVs in 2020. Based on page 33 of the company’s slide deck, the EV maker expects to make 29,000 EVs by 2021 year-end. By the end of 2022, it expects to make 65,000 EVs. And by 2025, it hopes to produce 290,000 EVs.
The company is presently making the Polestar 2. By 2023, total production will be 124,000, with two more models out by then.
The company claims it will have $1.6 billion in revenue by the end of 2021 and $3.2 billion in revenue by 2022. So far, there are no financial statements showing whether the company is on track to produce this revenue.
So if the reverse merger deal closes by the end of Q1 2022, we will gain considerably more information. We may be able to see its actual financials for 2021 by the spring of 2022. However, it is always possible the company will issue a financial report on its own prior to then.
On page 34 of the slide deck, the company projects out revenue for the next four years. By the end of 2025, it expects to be able to make $17.8 billion in revenue. The problem is there is really no way to tell if this is a realistic goal.
Moreover, it does not project making any kind of profit until 2024, at which point Polestar expects $700 million. Up until then, it projects losses — although during 2023 it hopes to break even.
What Polestar Could Be Worth
Let’s assume the company is indeed on track this year to make $1.6 billion in revenue, and $3.2 billion next year.
If the market gives the stock an 8 times sales multiple for 2022, its potential market capitalization will be $25.6 billion. That is about 2.9% over today’s “see-through” market cap of $24.89 billion.
That valuation would be a 39% discount to the 2022 price-to-sales (P/S) multiple of Tesla (NASDAQ:TSLA) at 13 times. But, compared to Nio (NYSE:NIO), at its 4.89 forward P/S multiple, it is at a premium.
However, once the reverse merger deal closes, there is a good chance the market could move its metrics closer to Tesla. For example, at 10 times its forward P/S multiple, Polestar would gain a market value of $32 billion (i.e., 10 times $3.2 billion forecast sales for 2022.)
At that valuation, the stock price could move up to 29% higher. This is because the $32 billion market cap is 29% over its present “see-through” market cap of $24.89 billion. That implies that GGPI stock (once the deal closes) could rise to $14.51 or so.
What to Do With GGPI Stock
We have shown that GGPI stock could be worth anywhere from 3% to 29% more, depending on how the market treats Polestar once the reverse merger closes.
One important factor that will influence this is whether the company comes out with its “see-through” financial statements. This will show investors how many EVs it’s produced and sold so far this year, and how much revenue it has made by the end of 2021. Short of that information, it might be difficult to get the higher end of this projected valuation.
On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) 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.