As EV (electric vehicle) stocks remain red hot, it’s no shock investors are bidding up CIIG Merger (NASDAQ:CIIC). The SPAC, or blank-check company, has made a deal to acquire EV van and bus startup Arrival. But, while Arrival already seems to have “arrived,” chasing CIIC stock now, as it goes parabolic, may not be the best move.
How so? With megatrends on their side, EV stocks have a lot of potential. But, with the excitement over newly public EV makers, the ones that have gone public in recent months may be ready for a correction.
Sure, as strong enthusiasm for EV stocks continues, these names could head higher in the near term. But, chances are this bullishness will start to fade, and most of the recent EV SPACs will pullback. That’s the case for CIIC (soon to be ARVL) stock.
So, what’s the call? With the high likelihood shares will fall back from here, the best move is to sit this one out for now. It may offer opportunity at lower price levels. At today’s prices? Not so much.
Why Investors Are Excited about CIIC Stock
Arrival, CIIG Merger’s acquisition target, may not be a household name in the U.S. But, in its home market of the United Kingdom, the company has made a name for itself. Already one of the U.K.’s most valuable startups, the EV maker has received backing from several well-known financial and industrial companies.
Unlike most of the EV companies going public via SPACs, Arrival isn’t going after the passenger-vehicle market. Instead, it sees opportunity in electric buses and vans. And, with its order backlog topping $1.2 billion, right out of the gate it seems this upstart is “crushing it.”
Based on company projections, by 2024 it could be generating $14.1 billion in sales, and $3.2 billion in EBITDA (earnings before interest, taxes, depreciation, and amortization). This alone may be why investors have bid up CIIC stock 144% since news of the deal broke.
However, the future is yet to be written. Plenty of EV companies this year whetted investors’ appetites with blockbuster sales and earnings estimates several years out. But, far from a slam dunk, companies like Arrival still need to prove themselves.
In addition, this year’s enthusiasm for EV stocks will eventually cool down. And, while that means the potential for near-term declines, it could also mean a more favorable entry point down the road.
There’s Big Potential, But Shares Could Sell-Off From Here
There’s no denying a name like Arrival has the potential to scale into a massive, profitable enterprise. Based on the aforementioned revenue and EBITDA projections, it’s no shock investors have already assigned this company, which has yet to deliver a single vehicle, a multi-billion-dollar valuation.
But, projections are not inevitable. Based on its current timeline, it’ll be years before we see the first signs of success. A lot could change between now and then. Also, with scores of startups and established companies looking to capitalize on the EV megatrend, this company’s pathway to $14 billion in annual sales is anything but a slam dunk.
With this in mind, it may not be wise to chase CIIC stock today, as shares skyrocket ahead of its just-announced merger with Arrival. Sure, between now and when the deal closes (anticipated to be in the first quarter of 2021), shares could continue climbing.
However, a correction in this stock, and almost all of the other EV SPAC stocks, seems very likely. The long-term bull case remains strong for many of them. But, in the near term, valuation concerns could start to have an impact. Coupled with speculators cashing out their quick gains, it’s easy to see a big pullback for most of the names in this sector.
Keep in mind I’m not bearish on this company. Far from it, as I see strong opportunity with its strong pre-order numbers. But, with this sector getting ahead of itself, shares could fall back to prior price levels.
EV SPACs Are Set to Pullback, and So Will This One
CIIG Merger (soon to be Arrival) may be the latest hot EV play coming down the assembly line. But, while its projections look very promising, after the recent run-up, jumping in now may not be the best move.
There’s a good chance CIIC stock and many other EV stocks sell-off after their strong recent performances. In other words, why buy now, when you can get in later at a lower price? With plenty of time to enter a long-term position in CIIC stock, don’t chase it at today’s prices.
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.
Matthew McCall left Wall Street toactually help investors –by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now.
More From InvestorPlace
The post Don’t Chase CIIG Merger in the EV Stock Buying Frenzy appeared first on InvestorPlace.