Between late October and mid-November, Gores Guggenheim (NASDAQ:GGPI) stock zoomed in price, thanks mostly to renewed buzz around electric vehicle plays.
Set to become an EV play itself once its special purpose acquisition company (SPAC) merger with Polestar Automotive Holding closes sometime in early 2022, GGPI stock joined in on the fun.
However, in the past few weeks, it’s pulled back. Trading for as much as $16.41 per share on Nov 16, it’s less than $12. You can blame this on several factors. The latest wave of EV mania has cooled down. Also, stocks overall have become volatile again, due to the emergence of a new Covid-19 Omicron variant, as well as due to recent hawkish remarks from the Federal Reserve.
Nevertheless, given that Polestar is similar to Lucid Motors (NASDAQ:LCID), another EV startup that went public the SPAC route, investors may be chomping at the bit to buy the dip before it jumps higher once again.
However, waiting for lower prices may be your better option.
Why? Sure, given the value assigned to Lucid, as well as Rivian Automotive (NASDAQ:RIVN), shares of GGPI look downright cheap. But due to two outside factors, the opportunity to buy this below its SPAC offering price of $10 per share could emerge.
GGPI Stock and the Upcoming Polestar Merger
Although announced back in September, it took some time for investors to get excited about this SPAC and its pending deal to take Polestar public. Again, much of this had to do with the renewed bullishness around EV stocks that emerged in late October.
But there was something else that helped send GGPI stock sharply higher. Per a Nov. 15 press release from Polestar, more details emerged about this early-stage EV company and its long-term prospects. Specifically, details about its success so far and its potential success in the years ahead. Right now, Sweden-based Polestar, which by the way is currently owned by China-based Geely Automobiles (OTCMKTS:GELYF), via its Volvo (OTCMKTS:VLVLY) unit, has its luxury EVs on the road in 14 markets.
By the end of 2023, it expects to be operating in over 30 markets. More importantly, based on its sales goals, this startup could be delivering 290,000 vehicles per year by 2025. In short, this is an EV startup in the same league as Lucid and Rivian, but somehow sports a much more reasonable implied valuation.
My InvestorPlace colleagues Joanna Markis and Will Ashworth have both pointed this out in their past coverage of this stock. Based on its expected post-deal share count (2.125 billion), Polestar has an implied valuation of around $26.86 billion at today’s prices. That’s cheap compared to the current market capitalizations of Lucid ($87.2 billion) and Rivian ($106.7 billion). I agree this helps make it a more appealing EV play than its closest peers. Still, taking one’s time may be the best approach.
Despite Low Valuation, Shares Could Move Lower
Based on relative valuation alone, GGPI stock looks like a clear-cut buying opportunity. In the coming year, as the SPAC merger closes and the soon-to-be-renamed Polestar makes more progress growing its EV sales, the stock may have a shot of getting to a Lucid or Rivian-tier valuation.
Then again, it may not play out this way. Not because of any delays with the deal or due to company-specific hiccups. Rather, due to two factors independent of the stock and its underlying business.
First, enthusiasm for EV plays could continue to simmer down. Like I discussed when talking about Rivian recently, much like what happened in prior waves of EV mania, investors could again realize that electric vehicles are still years away from gaining critical mass. This could put more pressure on GGPI stock, or at least prevent shares from bouncing back and making new highs in the near term.
Second, Federal Reserve Chairman Jerome Powell’s recent hawkish remarks about inflation indicates the may raise interest rates, in order to combat an issue that it once tried to write off as “transitory.” This too could push GGPI shares lower, as higher rates could push down the high valuations of growth stocks, including EV stocks.
Bottom Line: Take Your Time with Gores Guggenheim
While cheaper than its peers, this EV SPAC looks more likely to continue moving lower. But looking to the past performance of Lucid and other EV plays like Fisker (NYSE:FSR), this could work in your favor.
Market volatility and the cooldown in the latest wave of EV mania could push GGPI stock down to single-digit prices. But after that? Progress with its expansion efforts, or renewed bullishness for EV plays, could send it soaring once again. At least, based on what happened with LCID and FSR.
In terms of risk/return, your best move with GGPI stock is to take your time and wait for the price to drop below $10.
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.