Wall Street Is Bullish on REE Automotive Stock—Should You Be Too?

There have been several SPAC mergers in the EV (electric vehicle) industry over the last year. However, many of them trade below the SPAC IPO price of $10, which is frustrating investors. REE Automotive, which merged with 10X Capital Venture Acquisition (VCVC), also trades way below the $10 price level. Will REE Automotive stock recover and go back up? Here’s what Wall Street analysts say about the Israel-based startup EV company.

Startup EV companies and SPAC were a hot combination until about the first quarter of 2021. We saw a situation where Churchill Capital IV (CCIV) stock surged 550 percent from the IPO price just on rumors that it's taking Lucid Motors public. The merger happened but Lucid Motors, which now trades under the ticker symbol “LCID,” trades at less than a third of the highs that CCIV hit before the merger announcement.

First and forecast, REE Automotive stock has fallen amid the general pessimism towards pre-revenue companies. A lot of these EV mergers were announced when the markets sentiments for EV stocks were at their peak. Things are much different now and the execution delays from companies like Nikola and Lordstown Motors haven’t helped.

Looking at the company-specific factors, in an SEC filing, REE Automotive revealed that 30 million Class A shares, which is the entire PIPE (private investment in public equity) and 6.4 million sponsor shares, have been registered to be sold. Markets saw it as a sign that “insiders” and early investors are cashing out. However, it does not mean that the shares would necessarily be sold.

Companies that merged with SPACs have been volatile around the lock-up period expiration. For example, LCID tumbled as the PIPE expiration period neared on fears that PIPE investors would exit the company. However, the stock recovered and now trades near $20.

Analysts look very bullish on REE Automotive stock. Although the sample size is low, all three analysts covering the stock have rated it as a buy or some equivalent. Its median target price of $15 is a premium of 161 percent over the current prices. BTIG has a street-high target price of $20 on the stock, which is an upside potential of almost 250 percent over the next 12 months.

REE Automotive has been making several collaborations. In the earnings release, REE Automotive said that in the first half of 2021, it has made four major collaborations. The collaborations include the deal with Magna International, which is the largest global contract manufacturer for vehicles. Fisker has also partnered with Magna to produce its first EV model, the Ocean SUV.

REE Automotive has also entered into a collaboration with Hino Motors, which is a subsidiary of Toyota Motors. The company has announced collaborations with JB Poindexter & Co and Navya. In the release, REE Automotive said that it has $300 million as cash “which is sufficient to execute on the Company’s business plan.”

REE Automotive expects to start generating revenues in 2023 and has forecasted revenues of $0.3 billion for the year. It expects sales to grow rapidly and forecasts that it would generate an EBITDA of $904 million in 2025 on revenues of $5.7 billion. The company also said that it has an order book of 250,000 platforms.

Looking at the projections provided by REE Automotive and the current depressed stock price, which values the company at a market cap of only about $1.8 billion, REE Automotive looks like a good stock to buy. The stock should recover and go back up considering the strong growth outlook.

If REE Automotive can reach anywhere close to the forecasts that it's providing, it could be a million-maker stock. While the forecasts provided at the time of SPAC mergers should always be taken with a pinch of salt, REE stock looks too cheap to ignore at these prices. The weakness in the stock looks like a buying opportunity.