Gores Guggenheim Stock Is Cheap for a Reason, But That Is No Reason to Stay Away

In a recent article on Gores Guggenheim (NASDAQ:GGPI) stock, I focused mainly on its valuation angle. That is, the low implied valuation of its special purpose acquisition company merger with Polestar. This in turn made it a buy at current prices, and a screaming buy on further weakness.

A close up of a Polestar vehicle in front of a company sign.
Source: Jeppe Gustafsson / Shutterstock.com

But of course, valuation is just one part of the equation. As we know full well, stocks can be cheap for a reason. The market has its reasons to be skeptical about Polestar.

After all, it’s not just competing with Lucid (NASDAQ:LCID) and Tesla (NASDAQ:TSLA). Incumbent automakers, like Volkswagen (OTCMKTS:VWAGY) are rivals as well. Atop the risk of competition, there may be some concern about its China connection.

Yet is this a reason to stay away? Not so fast. It’s possible the market has focused too much on the negatives, and not enough on the positives.

Even when considering concerns/risks, Polestar is a promising EV startup. It’s an appealing opportunity, and not onlyy because it’s cheaper than peers.

GGPI Stock and Merger Target Polestar

You know the story about Lucid. Unless you’ve been living under a rock, you know the story behind Tesla. But what’s the story behind Sweden-based Polestar, which has become more well-known since its recent Super Bowl ad?

The company actually started off as a motor racing team. From there, it moved into producing prototype gas powered cars. Flash forward to 2015, and Volvo (OTCMKTS:VLVLY) buys it. In 2017, the famed Swedish automaker, along with its China-based corporate parent, Geely (OTCMKTS:GELYF), announced plans to turn Polestar into an EV-only brand.

Flash forward another five years, and it has scaled into an EV maker generating billions in annual sales. During 2021, it sold 29,000 vehicles That’s nearly three times what it sold in 2020.

As it ramps up output and its presence beyond Europe, it’s finding demand. Polestar’s models include its luxury couple Polestar 1 model, along with the Polestar 2, a sedan targeted at the mass affluent market.

That said, I can understand why many are skeptical that it’s a potential “Tesla killer” and not just a “wannabe Tesla,” one of many now trading in the public markets. However, this take may not be warranted. Instead, the market may be too quickly declaring it an “also-ran,” when in reality it’s a contender.

Why Investor Concerns May be an Overreaction

Unlike other EV SPACs like Fisker (NYSE:FSR) and Lucid, so far GGPI stock has not made a big leap above its SPAC offering price ($10 per share).

Part of this may have to do with the fact that the deal announcement didn’t happen until the very tail end of the last big spike in EV stocks last November.

But that’s not the only reason why investors have been approaching it carefully. Rising competition in the EV market is a top concern. Especially as it’s only starting to make itself widely known in the U.S. There’s also been concern about the company’s ties to China.

Even so, the treatment of Polestar compared to Lucid and Tesla may be an overreaction. Over in Europe, the brand has already made a name for itself, resulting in billions worth of sales. Here in the U.S., its Super Bowl ad has helped to put it more on the spotlight.

While Chinese-owned, it’s a Swedish company. It does not have the auditing/delisting issues you see with Nio (NYSE:NIO) and other China EV plays.

It may be currently producing its vehicles over in China. Yet with plans to build vehicles for the North American market at a Volvo facility in South Carolina? I wouldn’t be too worried about any tariff/trade issues, either.

Bottom Line on Gores Guggenheim

Unless “EV Mania” returns, I don’t expect Gores Guggenheim to make a big bolt between now and when the Polestar deal closes. As I’ve stated in past coverage, it may move lower in the near term. Perhaps, back down below its $10 per share debut price.

Nevertheless, whether it moves higher, or lower, from here, you may want to choose it as your EV play. Backing from established automakers, plus its success over in Europe, points to a strong chance it finds success in the U.S. auto market as well.

Targeting the mass affluent with the Polestar 2, and soon the Polestar 3 SUV, it may just well hit its goal of making six-figure annual deliveries, and generating tens of billions worth of sales, all within a few years.

With its merger target a lot more promising than the market gives it credit, consider GGPI stock a buy.

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.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.


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