Faraday Future (FFIE) is going public via a SPAC merger with Property Solutions Acquisition (PSAC). The transaction, which gives Faraday an implied pro forma equity value of $3.4 billion, is about to close. What's Faraday stock's forecast, and will it rise or fall after the merger?
After the transaction closes, PSAC public shareholders and sponsors will own 9 percent of Faraday, while PIPE (private investment in public equity) investors will own 23.5 percent.
When will Faraday stock start trading?
The merger was approved by PSAC shareholders on Jul. 20. Faraday is expected to close its business combination with PSAC on Jul. 21. Its common stock and warrants will start trading on the Nasdaq under the ticker symbols “FFIE” and “FFIE.WS”, respectively, on Jul. 22.
Faraday’s stock forecast
Currently, PSAC stock is being tracked by just one Wall Street analyst, who has given the stock a "buy" rating and target price of $26. This represents an upside potential of 88 percent from its current price.
Based on PSAC’s current price, Faraday has an enterprise value of $3.65 billion. Based on this value and Faraday’s projected total revenue, its valuation multiples for 2022 and 2023 are 7.2x and 0.9x, respectively. Since Faraday is a high-growth stock, the company’s 2025 enterprise value-to-sales multiple of 0.2x looks much more attractive. Canoo and Fisker are trading at 2025 enterprise value-to-sales multiples of 0.6x and 0.3x, respectively.
Will Faraday stock rise or fall after merger?
Faraday plans to deliver 2,400 vehicles in 2022, and 266,800 vehicles in 2025. The company expects to generate sales of $504 million in 2022 and forecasts its sales growing by 701 percent in 2023 and 161 percent in 2024. In 2025, the company projects revenue of $21.4 billion. It also expects to turn EBITDA-positive in 2024 and foresees EBITDA of $2.3 billion in 2025.
It's difficult to predict whether Faraday stock will rise or fall after the merger closes because it's highly driven by investor sentiment. If Faraday can keep its promises, FFIE stock might be a multibagger.
Is Faraday stock a good long-term investment?
As part of its merger with PSAC, Faraday will get gross proceeds of about $230 million in cash held by PSAC in trust and $775 million in PIPE at $10 per share. PIPE investors include the top three Chinese OEMs (original equipment manufacturers), including Chinese automaker Geely Automobile. Faraday will use the funds to launch its flagship model, the FF 91. The luxury EV (electric vehicle) is expected to go into production in 2022.
Auto investors should be cautious with Faraday stock. While sales of EVs are certainly expected to skyrocket in the coming years, Faraday has a long and troubled history. The company has been on EV investors’ radar after it made a big splash at the Consumer Electronics Show (CES) in 2016.
However, Faraday later burned through $2 billion, almost went bankrupt, and lost a co-founder and the majority of its early employees. Furthermore, Faraday could face intense competition from Lucid Motors’ Air, Tesla’s Model S, and General Motors’ Cadillac.
The PSAC SPAC warrant is trading on the Nasdaq under the ticker symbol “PSACW”. On Jul. 20, PSACW was trading at $3.28. The warrants become exercisable 30 days after the completion of the business combination. The exercise price of the PSAC warrant, like for other SPAC warrants, is $11.50.
What happens to PSAC after the merger?
After the deal is completed, PSAC stock will immediately convert to Faraday stock and cease to exist in its SPAC avatar.