Estimated read time: 4 minutes
Publication date: 8th Apr 2022 11:29 GMT+1
SPACs or special purpose acquisition companies were among the trendiest investment vehicles in the last two years. Basically, SPACs are public entities created to merge with private companies in order to take them public. It is considered an alternative to a traditional initial public offering or IPO. In 2019, there were just 59 SPAC IPOs. This figure increased to 248 in 2020 and 613 in 2021.
However, an economic trend witnessed in the last six months led to a sell-off of high-growth and speculative stocks dragging SPAC prices lower. Let’s take a look at three SPAC stocks attractive to contrarian and growth investors.
Down 61% from all-time highs, Lucid Group (NASDAQ: LCID) is currently valued at a market cap of $37 billion. Shares of the electric vehicle company plunged lower after its production guidance for 2022 failed to impress investors. Lucid initially stated it will deliver 20,000 units in 2022 but its forecast has been lowered to between 12,000 and 14,000 units.
Similar to most other manufacturing companies, Lucid has been impacted by supply chain disruptions. It seems Lucid is fighting an uphill battle to expand manufacturing capabilities in an environment where components are hard to find.
Companies such as Lucid will find it difficult to navigate the current uncertainties as they will have to switch suppliers, pay a higher cost for components, and order excess inventory, increasing operating costs over time.
However, Lucid remains a top bet for long-term investors given its technology, demand for products, sizeable manufacturing capacity, and robust cash balance.
Analysts tracking LCID stock expect sales to increase from just $27 million in 2021 to $3.43 billion in 2023, which means it's valued at a forward price to 2023 sales multiple of 11x. Lucid Group is trading at a discount of 50% to average analyst estimates.
A pioneer in the student loan refinancing vertical, SoFi (NASDAQ: SOFI) has successfully expanded its suite of products and services to manage all kinds of loans on its mobile application. You can access mortgage loans, buy stocks with tax-advantaged retirement accounts, open a checking account as well as hold a SoFi credit card with a single app.
In 2020, the fintech company spent $1.2 billion and acquired Galileo Financials, a digital payment platform with savings and checking account functionalities, which is likely to complement existing offerings.
SoFi recently received approval to become a national bank enabling it to finance loans with user deposits and lower cost of capital. SoFi ended 2021 with $1 billion in sales and its top line is estimated to grow by 44.6% to $1.45 billion in 2022 and by 42.2% to $2.06 billion in 2023.
Given its market cap of $6.5 billion, SOFI stock is valued at an attractive price to 2022 sales ratio of 4x.
Hims & Hers Health
The final SPAC stock on my list is Hims & Hers Health (NYSE: HIMS) which is down 80% from all-time highs, valuing the company at $1.02 billion, by market cap. HIMS is a telehealth entity that offers low-cost online medical consultation where patients can text, call, or video chat with healthcare professionals. It also operates a consumer-facing brand by selling products and supplements which is available online and in other retailers in the U.S.
Hims and Hers increased recurring subscriptions from 157,000 in Q1 of 2019 to 609,000 in Q4 of 2021. In the last three years, annual consultations were up 450% allowing the company to increase sales at an annual rate of 117% in the last three years. It ended 2021 with $272 million in sales with an adjusted EBITDA of negative $30 million.
However, HIMS has a cash balance of $250 million providing it with enough liquidity to support its cash burn rate. Further, its gross margin has almost tripled in the last three years and was around 75% in 2021. So, HIMS is on-track to turn profitable by the end of 2024 as margins are bound to move higher on the back of revenue growth.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
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