Gore Guggenheim (NASDAQ:GGPI), a special purpose acquisition company (SPAC), is set to merge with Swedish electric vehicle (EV) maker Polestar. The deal is not expected to close until sometime in the first half of 2022. But GGPI stock looks like a good bargain here, worth at least 23% more at $14 per share.
The deal was first announced on Sept. 27, 2021. The GGPI SPAC, which already has $800 million in cash on its balance, agreed to a reverse merger with an existing electric car maker, Polestar. In addition, some private investment in public equity (PIPE) investors will bring in an additional $250 million in cash. After $55 million in deal expenses that will bring Polestar a total of $995 million.
This can be seen here on a very well-put-together slide deck presentation available on their website. At today’s price of $11.42, GGPI stock looks like the stock could be worth 23% more at $14 per share.
Where Things Stand At Polestar
As a number of analysts point out, the good thing about this SPAC merger is that Polestar is already producing electric vehicles. That makes it more than just a startup, like Lucid (NASDAQ:LCID) or Rivian (NASDAQ:RIVN).
For example, according to Polestar’s recent slide deck, the company expects to have produced 29,000 electric vehicles (EVs) by the end of 2021. The company also expects that its 2021 revenue will hit $1.6 billion. These projections are on page 33 and page 34 of its recent slide deck.
This implies that the average sales price of its EVs will be $55,172 per car (i.e., $1.6b/29K EVs = $55.17K).
Moreover, Polestar also projects that its 2025 production will reach 290,000 units and its revenue will be $17.8 billion. That implies that its average selling price will be $61,379 per EV.
So, you can see that this is not a startup company by any means. Moreover, assuming that the deal goes through in the first half of 2022, the pro forma market value right now is $24.267 billion.
This is because page 37 of the slide deck shows that Polestar expects there will be 2.125 billion shares outstanding at the close of the merger. So multiplying 2.125b by the Jan. 14 price of $11.42 results in a market cap of $24.267 billion.
We can use this to see whether Polestar’s pro forma market cap (i.e., using the GGPI stock price today) is fairly valued.
Polestar’s Valuation (GGPI Stock)
If we assume that its 2025 revenue forecast of $17.8 billion is likely to occur, we can use that to value GGPI stock now. However, the first thing we should do is bring that revenue back to its present value.
For example, assuming a 15% annual interest rate, discounting that revenue four years in the future results in a discount factor of 57.17%. That means that the $17.8 billion in 2025 revenue is worth about $10 billion in present value terms (i.e., 0.5717 x $17.8b = $10.176b).
Therefore, at today’s $24.267 billion market value, Polestar is just 2.38 times 2025 revenue, on an adjusted present value basis. That does not seem overly expensive, even though it is four years in the future.
To be even more conservative, let’s do the same thing with Polestar’s 2023 forecast revenue. Page 34 of the slide deck shows that it projects $6.7 billion in revenue. The discount factor two years out at 15% is 75.6%. Therefore, the $6.7 billion 2023 revenue is equal to $5.065 billion today.
That puts GGPI stock on a 2023 P/S metric of just 4.79x times revenue. The comparable figure for Nio (NYSE:NIO) stock is 4.15 times, based on my calculations using Seeking Alpha revenue estimates. That puts GGPI stock slightly higher than Nio.
A comparable metric for Tesla (NASDAQ:TSLA) stock is 15.7 times revenue, based on my calculations. Thus, as a result, GGPI stock does not appear overvalued compared to TSLA stock.
What To Do With GGPI Stock
The bottom line is that GGPI stock appears slightly more expensive than NIO but significantly less expensive than TSLA stock.
Moreover, compared to Lucid (NASDAQ:LCID), GGPI stock looks very reasonable. For example, page 59 of Lucid’s Feb. 2021 slide deck, projects $5.532 billion in revenue for 2023. On a present value basis that is equal to $4.182 billion. So, using Lucid’s $68.18 billion market value today, LCID stock trades for 16 times 2023 revenue. Compare that to Polestar’s 4.79 times P/S metric.
And since Polestar is already producing EVs, compared to Lucid as a startup, you can see that GGPI stock is very undervalued. This is why I feel that GGPI stock could easily rise 23% from here, to $14 per share.
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.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
