GWH Stock Forecast: How Low Can ESS Go After Post-Merger Euphoria?

ESS (GWH), which recently listed through a SPAC merger with ACON S2 Acquisition Corp., has been volatile. The stock recorded a high of $28.82 but has fallen almost 42 percent from those levels. Why is GWH stock going down and what's the forecast as the post-merger mania dies down?

There has been a flurry of SPAC mergers in 2021. In most cases, we have seen a spike in stocks around the merger date. The euphoria continues for a few trading days after the merger before realism sets in and stocks revert towards their fundamental value.

GWH stock fell almost 11 percent on Oct. 14 and looks set to continue its slide on Oct. 15. The rise in GWH stock was speculative and driven by the short squeeze frenzy that we’ve seen in many other SPACs.

For ESS, almost 20.8 million of the 25 million outstanding shares were redeemed during the merger votes. The outstanding shares after the merger were only a fraction of what they were before the merger.

We’ve seen a similar rulebook play out in many other stocks. For example, 97 percent of Locust Walk Acquisition Corp. (LWAC) shareholders opted for redemption, which led to a massive short squeeze rally where the stock rose above $40, or four times the IPO price. Currently, it trades below $13.

Blue Water Acquisition merged with Clarus Therapeutics. The stock soared above $31 on short squeeze speculation but currently trades near $5. Forget retaining the gains from the short squeeze, the stock has tumbled way below the SPAC IPO price.

There are many more examples including Volta, which also saw massive redemptions during the merger voting and soared near the merger date. Now, the stock trades below $8. To sum it up, the short squeeze gains aren't sustainable, with the exception of names like GameStop and AMC Entertainment.

AMC Entertainment and GameStop are examples of retail shareholder activism. The loyal retail shareholder base has helped buoy both of these stocks even though Wall Street thinks that they're overvalued.

GWH is working to commercialize iron-based battery flow and counts Bill Gates as among its investors. The company calls its batteries “an environmentally benign, long-life energy storage solution for the world's rapidly growing renewable energy infrastructure.” Clean energy companies have been the flavor of the season ever since Joe Biden was elected as the U.S. president.

Since the company only recently listed, we don’t have analyst forecasts for GWH stock yet. The company has raised a little over $300 million from the merger, thanks to the $250 million PIPE investment. While GWH raised less cash than it would have if not for the massive redemptions, the company thinks that the cash is sufficient to meet its near-term needs.

As we’ve seen with other such short squeeze cases, the stocks tend to revert towards the levels where they traded before the rally. ACON S2 Acquisition was trading below the $10 price level before the massive redemptions. Now, as the speculative rally fizzles away, the stock should also move closer to the pre-merger levels.