Embark (EMBK) Has Potential, Looks Like a Good Buy After the NGAB Merger

Northern Genesis Acquisition Corp. II (NGAB) stockholders have approved its business combination with Embark Trucks, and the merged entity started trading on Nov. 11, 2021, under the ticker symbol “EMBK”. What’s the forecast for Embark stock, and is it a good buy?

Founded in 2016, Embark focuses on the software and supporting technology for autonomous trucking. The company can convert existing truck fleets into autonomous fleets and collaborates with carriers and truck manufacturers rather than developing its own vehicles. Embark is led by 26-year old CEO Alex Rodrigues.

Embark stock fell as much as 12 percent on its first day of trading, going as low as $8.65 after opening at $10. This suggests that investors are disappointed with the merger. Investors seem to be questioning Embark’s valuation and the company’s ability to meet the projections provided in its merger presentation. Several stocks, including BLADE Urban Air Mobility and Beachbody, are trading below their SPAC IPO price of $10. Embark stock was up 2 percent in after-hours trading on Nov. 11.

Embark will get $514 million in gross proceeds from the transaction—$314 million from the SPAC trust account and the remaining $200 million from PIPE (private investment in public equity) investors, according to Silicon Valley Business Journal. Embark will receive about $300 million less than estimated in its merger because nearly half of NGAB shares were redeemed before the deal closed.

Since no analysts track Embark stock, we have to rely on estimates provided by the company. The company has yet to generate revenue. Embark forecasts revenue of $867 million in 2024 and $2.8 billion in 2025. In 2025, Embark expects to turn EBITDA-positive and projects EBITDA of $640 million. Wedbush estimates that about $750 billion will be spent on commercial self-driving vehicles over the next five years, according to CNBC.

Based on its current stock price, Embark’s enterprise value is about $4 billion and its EV-to-2024 sales multiple is 4.6x. Its multiple for 2025 is 1.4x, which seems more reasonable. In absolute terms, the company has an equity value of about $4.5 billion.

Aurora Innovation was valued at $12.5 billion after it merged in Nov. 2021 with a SPAC led by Zynga founder Mark Pincus and LinkedIn co-founder Reid Hoffman. TuSimple went public in April 2021 and has partnered with UPS on lanes for autonomous package delivery. TuSimple has a market cap of $8.5 billion. On Nov. 11, 2021, electric truck maker Rivian went public with a valuation of around $80 billion.

Embark claims that its autonomous technology can enhance fuel efficiency by 10 percent, decrease delivery time by 40 percent, and increase revenue per truck by 300 percent. The company works with AB InBev, Werner Enterprises, Ryder, and DHL, among others, as all industries aim to cut supply-chain spending.

Embark's CEO believes that congestion at U.S. ports, truck driver shortages, and the rise of e-commerce have provided a unique opportunity for autonomous trucking. Knight-Swift Transportation, Mubadala Capital, Sequoia Capital, and Tiger Global Management have invested in Embark.