Wait for a Better Price Before Jumping in on Gore Guggenheim

Cristian Docan

March 8, 2022 4 min read

GGPIU

Gore Guggenheim (NASDAQ:GGPI), a blank check company formed to complete a merger with another business, has lost about 6% year-to-date to $11 per share.

A close up of a Polestar vehicle in front of a company sign.

Source: Jeppe Gustafsson / Shutterstock.com

The special purpose acquisition company (SPAC) is expected to combine with Polestar, a Swedish pure-play electric vehicle (EV) performance car brand, later this year. GGPI stock recently reached a fresh low of $10.11 per share. This support is unlikely to break in the short term, as speculative buying should continue to support it, ahead of Polestar’s listing.

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GGPI Stock Has a Strong SPAC Track Record

GGPI stock is a franchise of The Gores Group, a global investment firm focused on partnering with businesses in different sectors. The Gores Group is also a SPAC sponsor, with a strong track record. The parent company of GGPI merged with best-in-class companies that offered fast growth opportunities and strong cash flows.

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With a total transaction value of $38 billion and $6 billion in equity cash raised across the SPAC space, the investment firm has contributed to the initial public offerings (IPO) of numerous companies. Notable names include: United Wholesale Mortgage (NASDAQ:UWMC), Matterport (NASDAQ:MTTR), and Ardagh Metal Packaging (NYSE:AMBP).

The investment firm is now well-honed on the SPAC exercise. Nevertheless, some of the stocks which went public through Gore’s SPAC are currently trading below their IPO price. This is not a productive long-term signal for Polestar’s future valuation and therefore for GGPI stock.

Polestar Ambitions to Become a Global EV Pure Play

Polestar has some key fundamental benefits compared to other EV companies such as Lucid Motors (NASDAQ:LCID), Lordstown Motors (NASDAQ:RIDE), and Nikola (NASDAQ:NKLA) that went public through SPACs. For instance, the company backed by Volvo (OTCMKTS:VLVLY) and by parent company Geely (OTCMKTS:GELYY) can leverage the technology and infrastructure of these two well-established automakers. Polestar has already brought to market nearly 29,000 vehicles in the past three years and it is active in 14 markets across three continents, an important milestone for a private EV firm. Besides, more than 90% of these sales were Polestar 2 vehicles, an EV hatchback that is a potential competitor of Tesla’s (NASDAQ:TSLA) Model 3.

In addition, GGPI stock and Polestar have ambitious growth targets, expecting to launch three new models in the next two years and to sell approximately 290,000 vehicles by 2025. The premium EV player is also looking to extend to 30 global markets by 2023 and diversify its production capacity. Currently, Polestar’s manufacturing capacity is exclusively based in China. However, the EV company expects to ramp up production in the U.S. by 2023, leveraging on Volvo Cars production lines in Charleston.

GGIP Stock Is Overvalued Compared to Chinese Peers

The proceeds of the SPAC combination will be used to help fund the development of future model launches and to fuel operation expansion to create a leading EV company in the fast-growing EV market. The transaction will enable the company to raise approximately $995 million in cash, decayed in $800 million from Gores Guggenheim’s trust account, $250 million from PIPE investors, and $55 million in expected transaction expenses.

With these proceeds, the implied value of the combined company will reach around $20 billion. According to Polestar’s Investor presentation, the valuation of the combined company will correspond to 2023 expected EV/Revenue of 3x and 2024 EV/Revenue of only 1.5x.

This valuation might look attractive compared to U.S EV peers. For example and although these competitors have not yet produced a significant number of electric vehicles, LCID trades at 2023 EV/Revenue of 11x, whereas NKLA is exchanging at 4.66x.

However, Chinese-based EV stocks are much cheaper, with NIO (NYSE:NIO) at 2023 EV/Revenue of 1.56x and Li Auto (NASDAQ:LI) posting a valuation metric of 1.93x.

Bottom Line on GGPI Stock

With that being said, the constructive momentum on GGPI stock might continue in the near term until the completion of the SPAC transaction, due mainly to speculative buying. However, and even if Polestar has attractive growth prospects and is well-positioned to take a chunk of the EV market in the markets it operates on, the company remains expensive.

Therefore, I believe that after the SPAC combination, Polestar will trade closer to Chinese EV stocks rather than U.S peers. In addition, Polestar’s marginal presence on the U.S market is another argument sustaining this valuation comparison and my bearish view of GGPI stock.

On the date of publication, Cristian Docan 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.