Soaring Eagle Acquisition (SRNG) announced a merger with Gingko Bioworks in May. The merger is expected to be completed in the third quarter. ARK Invest’s Cathie Wood has been buying some SPACs that are yet to merge and SRNG is one of them. Should you buy SRNG stock like Wood?
Ginkgo Bioworks is a Boston-based biotech company. According to the company, it “is building a platform to enable customers to program cells as easily as we can program computers.” The company’s platform is used in biotechnology applications in several industries including chemicals, pharmaceuticals, and agriculture. In Ginkgo Bioworks' presentation, the company said that over 70 customer programs are running on its platform.
SRNG-Gingko Bioworks merger details
The merger with SRNG valued Gingko Bioworks at an equity value of $17.8 billion. The company will also receive cash proceeds of $2.5 billion before transaction fees as part of the transaction. After the merger, the combined entity would have an EV (enterprise value) of around $15.2 billion.
Gingko Bioworks sees the market for bioengineered products between $2 trillion and $4 trillion. The estimates are based on a 2020 report from the McKinsey group. Citing Piper Sandler Research, it said that the cell engineering R&D alone is a $40 billion market in 2021, which is expected to rise to $58 billion by 2023.
Is Gingko Bioworks stock undervalued?
Gingko Bioworks is forecasting GAAP revenues of $628 million in 2024 and $1.099 billion in 2025. These only include the foundry revenues and don't include the contribution from emerging businesses. The company is valued at 17.5x its 2024 projected foundry revenues. According to the data compiled by Gingko Bioworks, the median multiple for growth companies in the life science tools industry is 18.7x.
Gingko Bioworks sees the downstream business adding a lot of shareholder value and has calculated the present value of the business at $25 billion. It's forecasting over 500 new programs by 2025. Biosecurity is the third revenue stream for Gingko Bioworks and is expected to add $50 million to its 2021 revenues.
Cathie Wood is buying SRNG stock.
Wood has established herself as a top fund manager. She identified names like Tesla and Square early. Wood is known to back companies where she has conviction. Recently, she was in the news when ARK sold a large chunk of Chinese stocks amid the crackdown in the country.
In April, Wood said that she sees genomics and digital wallets as the two big investing themes for the future. ARK runs the ARK Genomic Revolution ETF (ARKG), which is an actively managed fund. The ETF is down over 9 percent in 2021 and is underperforming the markets.
Since Wood’s portfolio is concentrated in growth names, ARK ETFs have underperformed in 2021 amid the sell-off in growth names. Meanwhile, Wood has been adding more SRNG stock, The SPAC accounts for 1 percent of ARKG’s portfolio.
Should you buy SRNG stock like Wood?
Bioengineering and genomics look like good investment themes for the next few decades. Some of the legendary names including Baillie Gifford and Wood are backing SRNG.
SRNG trades near the SPAC IPO price of $10. The stock has been moving in a very narrow price channel. However, it could move much higher in the long term looking at the huge market opportunity and the stock’s reasonable valuations.
Next, we'll hear from Gingko Bioworks when it reports its first-half results on Aug. 18. A positive business update combined with the upcoming merger could be the two near-term triggers that take SRNG stock higher.