Particular objective acquisition corporations (SPACs), particularly people who have merged with privately held electrical automobile (EV) corporations, have been a number of the top-performing stocks in 2020. Will that be the case right here with Switchback Power (NYSE:SBE)?
It is determined by how issues play out within the near-term. Final month, Switchback introduced its merger with ChargePoint. ChargePoint doesn’t make EVs, however stands to win large as this megatrend performs out within the coming years.
How so? This firm provides the charging stations and associated infrastructure for electrical vehicles and vehicles. Already a pacesetter in its house, its gross sales might skyrocket over the subsequent decade.
As soon as the deal wraps up, it’s attainable the stock (quickly to re-named CharePoint Holding) takes off, very similar to the opposite SPAC names have achieved post-merger. But, whereas the prospects for this EV play look promising, there’s some danger shares head decrease within the near-term.
Specifically, with traders desirous to “get in on the ground floor,” shares have soared above their $10 per share providing price, to costs as excessive as $16.45 per share. Positive, in latest days, shares have pulled again, and now change fingers slightly below $14 per share.
However, a further pullback might be within the playing cards. The “EV bubble” hasn’t precisely popped simply but. However, with the chance curiosity on this sector cooling off within the short-term, a extra favorable entry level might be simply across the nook.
That’s to not say this isn’t a stable alternative at the moment, however treading fastidiously may be the perfect transfer.
Huge Potential for SBE Stock After the ChargePoint Merger
Valued at $2.Four billion, ChargePoint may have $493 million in dry powder post-merger to execute its development technique. Proper out of the gate, the EV charging infrastructure supplier is already crushing the competitors.
With 4,000 clients, and over 115,000 charging areas, ChargePoint is getting off to an ideal begin. And, based mostly on estimates, it’s attainable we’ll see blockbuster development within the coming years.
What am I speaking about? Based mostly on firm projections, the EV infrastructure supplier might see its income soar from round $135 million this 12 months, to over $2 billion by 2027. Positive, there’s no assure issues will play out as predicted. However, these numbers are affordable given how briskly electrical autos are gaining vital mass.
As InvestorPlace’s Louis Navellier wrote Oct. 6, EV passenger automobile gross sales are anticipated to develop from 2.1 million in 2019, to eight.5 million in 2025.
With this fast proliferation of electrical autos, it’s clear demand for charging options matches up with ChargePoint’s aggressive income projections. However, whereas the bull case for this stock looks like a “no-brainer,” the chance of this 12 months’s “EV bubble” cooling may imply it’s sensible to observe near-term warning earlier than diving into this potential long-term winner.
Dangers to Take into account as ‘EV Mania’ Begins to Wane
The bull case for this EV play is lots clearer than with different EV corporations which have just lately accomplished SPAC mergers. However, that doesn’t assure Switchback shares will go parabolic after the ChargePoint deal closes.
Why? Positive, the “EV bubble” hasn’t popped simply but. Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO) have bought off a bit, however nonetheless are up massively from their 52-week lows. Nikola (NASDAQ:NKLA) stock has cratered. However that has extra to do with points instantly associated to the corporate, slightly than decreased curiosity in EV stocks. But, we may be getting shut.
Because the spring, “growth at any price” has been the secret for electrical automobile performs. Because of this, EV stock valuations have gotten method forward of themselves. It’s unattainable to estimate when it’ll occur, however it’s solely a matter of time earlier than this bubble bursts.
The end result? Whereas EV megatrends will stay in movement, at the moment’s frothy multiples might contract. That’s to say, even when main EV names carry on “crushing it” within the development division, their respective share costs might nonetheless pattern decrease from right here.
What does that imply for Switchback’s shares? By the point the merger wraps up, “EV mania” might be over. That doesn’t imply shares are heading to single-digits. However, the stock may not see the identical parabolic strikes with this stock like we now have with many SPAC/EV names in 2020.
There’s Alternative Right here, However Tread Fastidiously
The problem right here is just not that this sizzling stock is “all sizzle, no steak.” Removed from it. In contrast to a number of the different EV stocks on the market, it’s not making an attempt to be the subsequent Tesla. As an alternative, it’s honing in on what might be a profitable phase of the EV financial system.
But, with the chance the “EV bubble” fueling the sector greater begins to chill, ready for pullbacks may be one of the best ways to purchase Switchback.
On the date of publication, Thomas Niel didn’t have (both instantly or not directly) any positions in any of the securities talked about on this article.
Thomas Niel, contributor to InvestorPlace, has written single stock evaluation since 2016.