Churchill Capital IV (CCIV) stock opened higher on May 14 and is looking to recoup some of its losses. Why is CCIV stock rising and will the gains sustain before its merger with Lucid Motors?
The Lucid Motors and CCIV merger was the most hyped SPAC merger for 2021. The merger was announced when EV stocks were the flavor of the season.
EV stocks have fallen.
However, the bullish thesis for EVs is punctured now. The kind of valuations that most EV stocks are trading at gets hard to justify in light of increasing competition. The rise in bond yields and inflation isn't helping matters either for pre-revenue companies like Lucid Motors.
Why CCIV stock is rising
CCIV stock is rising on May 14 since the U.S. stock markets have opened higher. Also, EV stocks have tended to trend in tandem with each other. EV stocks are looking at some redemption after witnessing selling pressure during the weak. Fisker is leading the pack with strong double-digit gains after announcing an agreement with Foxconn.
CCIV stock might not rise more before the Lucid Motors merger.
The CCIV-Lucid Motors merger is expected to be completed in the second quarter. Looking at the negative sentiments towards speculative growth names, especially pre-revenue stage companies like Lucid Motors, the stock might not recover much before the merger with Lucid Motors.
CCIV stock looks overvalued.
CCIV stock looks overvalued even after the recent crash. The stock has a pro forma market capitalization of around $29 billion, while it expects to post revenues of just under $14 billion in 2025. This would mean a 2025 price-to-sales multiple of 2x. Even after accounting for all of the growth and attractive product proposition, Lucid Motors stock looks overvalued at these levels
CCIV stock could fall towards $15 amid the sell-off in EV stocks. While there could be dead cat bounces as we’ve seen over the last few months, the stock has continued to trend downwards.
Why CCIV stock could fall more
Looking at the charts of CCIV stock, it has been making lower lows, which is a bearish technical driver. The stock is also trading below its 10-day SMA (simple moving average) and 20-day SMA (simple moving average), which are short-term bearish signals.
Even if we leave the technical indicators aside, CCIV stock is looking weak fundamentally. I would expect it to make new lows after the current rise.
Best EV stocks to buy
The bubble in EV stocks has burst. Legacy automakers have tightened their belts and aren't in the mood to leave their turf for pure-play EV companies. Increasing competition in the EV industry would also lead to pricing pressure in the medium term. We haven’t factored in Apple’s rumored entry into the EV industry yet.
While the EV pack still looks weak there are two names that I find interesting. The first is Chinese EV maker Xpeng, which trades at a lower relative valuation than NIO. If you want to bet on a pre-production stage EV company, Fisker could be a better bet than CCIV. Fisker has a market capitalization of only about $3 billion and the stock could see better days if it can execute its business plans.