A few weeks back, I made the case why it was too early to dive into Tuscan Holdings (NASDAQ:THCB) and THCB stock. Why? At the time, this SPAC (special purpose acquistion company) had already signed a letter of intent to acquire EV battery maker Microvast.
But, other than naming its acquisition target, Tuscan provided little else in terms of information. No current financials. No long-term forecast. Not even the acquisition price.
In short, not enough to decide whether it was a worthwhile opportunity. However, despite the lack of information, speculators were willing to bid it up on the headlines alone. Between the announcement and late January, shares soared from around $10 per share up to around $16 per share.
Yet now, as it’s signed a definitive merger agreement, we have more information on this pending acquistion. The verdict? Based upon the terms of the deal, along with the company’s projected growth through the 2020s, this is shaping up to be a great play on the future of EVs.
Granted, as seen from the stock’s price action on the heels of the definitive merger news, Wall Street has started to price in its fantastic prospects. As the stock continues to rally above $20 per share, things may look a bit overextended.
But, even at today’s prices, it’s still a solid buy. And, if shares pull back from here? Consider it a great opportunity to buy this potential long-term winner at a more favorable entry point.
THCB Stock: Details on the Tuscan/Microvast Tie-Up
Now that we have the numbers for this pending transaction, I’ve gone from being on the fence to bullish on THCB stock. Although it’s paying up to acquire Microvast, based upon its projections, the purchase price looks reasonable.
Per the proposed transaction overview, the deal values the combined company at $3 billion. But, that valuation is based upon this SPAC’s initial offering price of $10 per share.
At today’s prices, the implied market value of Tuscan stock, soon to be Microvast stock, is around $6.8 billion. Deducting the $772 million in post-deal cash, and adding in the $171 million in existing debt, the implied enterprise value stands at $6.2 billion.
Given its estimated sales of $230 million this year, that means the company today is valued at an enterprise value/sales ratio of around 27x. To some, that may look like a rich multiple.
But, factor in its tremendous growth potential. By 2025, Microvast’s annual sales could reach $2.34 billion. By 2030? $6.85 billion. With this in mind, today’s seemingly frothy valuation looks a lot more reasonable.
Add in the success it’s had so far, and this early-stage electric vehicle (EV) company is looking more than set to become a winner in this fast-growing sector.
Current Success Points to a Bright Future
Pretty much every early-stage EV and EV-related company has come out with ambitious sales projections for between now and 2030. With the pivot from gas-powered to electric-powered cars set to accelerate over the next nine years, by-and-large, these estimates may not be off the mark. But, while some will beat expectations, others will fail to meet them.
Yet, that doesn’t look to be the case with this company. Compared to other early-stage names out there, I am highly confident in its prospects. Why? Several reasons. For starters, it’s locked down $1.5 billion in contracted revenue between now and 2027.
In addition, it’s already entered partnership deals with some of the largest automotive names in the U.S., Europe and China. To top it all off, this vertically integrated battery-manufacturer isn’t limiting itself to just the EV market. It’s also targeting growth opportunities in consumer electronics, as well as in data center energy-storage solutions.
Off to a great start, Microvast has a great future ahead of it.
A Solid Buy Today, and a Screaming Buy on Any Pullback
With the newly released data on the Microvast deal, THCB stock looks to be a long-term winner in the making. However, keep in mind that, while this sector’s still running hot, we could eventually see an EV stock correction.
Why? At some point, some of these early-stage electric vehicle companies are going to start to stumble. This could be what finally pops the “EV bubble.”
If this happens, even stronger names like this one will head lower. However, a correction or sell-off may not be the worst thing in the world for those looking to make a long-term bet on the future of electric vehicles. In fact, a big move lower for Tuscan stock could provide an optimal entry point for a long-term position.
Bottom line: A solid buy at today’s prices, and a screaming buy on any pullback, THCB stock is a great opportunity ahead of its pending merger.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
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