Lately, you might have heard about companies going public through the special purpose acquisition company (SPAC) route rather than via a traditional initial public offering (IPO). Spartan Energy (NYSE:SPAQ) is among the more recent SPACs, and traders need to understand the company’s purpose before taking a position in SPAQ stock.
Going public through a traditional IPO can be a costly and exhausting process. SPACs offer up-and-coming businesses a chance to go public on a major stock exchange by merging with a “shell” or “blank-check” company.
The shell company then has an IPO, thereby allowing the acquired company to effectively get its own ticker symbol on a stock exchange. So, Spartan Energy, the shell company, isn’t itself a particularly exciting firm.
As for the acquired company, however, there’s no shortage of appeal among electric vehicle enthusiasts. If you can look past the SPAC hype, you might find that a stake in SPAQ stock is worth the price of admission.
A Closer Look at SPAQ Stock
Prior to mid-2020, Spartan Energy flew under the radar for many months. During that time, the price action of SPAQ stock was rather lackluster.
However, a very special announcement, which we will soon explore, galvanized SPAQ stock traders in July of this year. The SPAQ share price was trading at $10.80 on July 8 but rocketed to $14.96 the next day.
Then, on July 13, SPAQ reached $19.36. Unfortunately, traders who bought shares near that price soon suffered sharp losses. The SPAQ share price closed at $13.36 on July 24, retracing much of the previous day’s gains. A trailing 12-month price-earnings ratio of 69.2 times suggests that SPAQ stock might still be expensive.
In any case, the pop and subsequent drop in SPAQ was swift and short-lived. For cautious investors, therefore, SPAQ stock is probably too volatile to own right now.
Making Sense of the SPAC-tacle
So, what is up with the hype surrounding the SPAQ SPAC? The share-price pump can easily be attributed to the red-hot market into which Spartan Energy has indirectly inserted itself.
That market is the electric vehicle industry, and the acquired company in question is known as Fisker. If you’ve never heard of Fisker, then you’re not alone. It’s a relatively small electric vehicle manufacturer.
Fisker is working furiously to make a splash in the electric vehicle space with its flagship product, the Fisker Ocean. Hence, it’s almost mandatory that you learn about this vehicle before seriously considering a position in SPAQ.
We will certainly explore the Ocean, but at least now we understand why a sleepy shell company has received so much attention lately. Just make sure that you thoroughly research Fisker rather than buy SPAQ shares solely based on the SPAC storm.
Plumbing the Ocean’s Depth
I have to make a confession to you here and now: Never before have I seen the phrase “Vegan interior and recycled materials” emblazoned on an automotive manufacturer’s website landing page.
Clearly, the Ocean is designed for the modern, sustainability-focused consumer. Open-minded millennials and, soon enough, members of Gen Z, are likely consumer targets here.
Along with the meatless interior, the Ocean also provides:
- An optional solar roof designed to augment the Ocean’s electric power source.
- Interior trim derived, at least partially, from polyester fibers and recycled bottles.
- The re-utilization of discarded rubber waste from the tire manufacturing process.
Other than that, the Ocean is surprisingly typical in terms of its look and functionality. Only time will tell whether offering “the world’s most sustainable vehicle” will be enough to keep the company itself sustainable.
The Bottom Line
So, now you know why SPAQ stock popped and what the acquired company, Fisker, has to offer. If you do choose to own the shares, focus less on the SPAC and more on the Ocean, which may be clean in intent but murky in outlook.
David Moadel has provided compelling content — and crossed the occasional line — on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
