Lightning eMotors went public through a reverse merger with GigCapital3 (GIK). The stock fared poorly and was trading below the SPAC IPO price of $10. However, ZEV stock is up sharply in the early price action on Aug. 10. What’s the forecast for the stock in 2021 and is it a good investment amid the short squeeze?
Most of the EV (electric vehicle) startup companies that have gone public over the last year through a SPAC reverse merger have performed poorly. Along with ZEV, Lordstown Motors and Canoo are among the companies that are trading below the IPO price of $10.
Why ZEV stock is going up
After sagging below the $10 price level for a long time, there's finally some good news for ZEV investors. The company has announced a multi-year $850 million deal with Forest River—a Berkshire Hathaway company. As part of the deal, Lightning eMotors will deliver up to 7,500 zero-emission shuttle busses between 2021 and 2025. It’s a big deal for the company. The fact that it's coming from a Warren Buffett backed company is the cherry on the cake.
Expressing optimism about the deal, Tim Reeser, the CEO of Lightning eMotors, said, “This has the potential to be the largest contract ever in the electric shuttle bus market, and we believe it will be the catalyst for other large commercial vehicle OEMs and fleets to accelerate their adoption of commercial electric vehicles.”
ZEV stock forecast
Wall Street analysts have a bullish forecast for Lightning eMotors and its median target price of $14.50 is a premium of almost 50 percent over the current prices. Among the six analysts polled by CNN Business, only one has rated ZEV as a sell, while five analysts have a buy rating on the stock.
Is ZEV stock a good investment
The deal with Forest River only strengthens ZEV’s proposition as a good investment. The company isn't in the pre-revenue stage like some of the other startup EV companies and has delivered vehicles. Since the company has been in the business and has delivered vehicles, the execution risk is lower than its peers who are yet to deliver even a single vehicle.
Lightning eMotors sells directly to big fleet customers. It also provides analytic service for fleets, which is a recurring revenue stream for the company. ZEV provides charging solutions, which are a big thrust area for the Biden administration.
ZEV stock looks undervalued
Analysts expect ZEV to post revenues of $322 million in 2022. The revenues might not include the impact of the deal with Forest River since it just got announced. The projected revenues imply a 2022 price-to-sales multiple of just over 2x. The multiples are way below some of the other startup EV companies including those that haven’t delivered any vehicles to customers yet.
ZEV is a good long-term investment
ZEV stock is a good long-term investment. The company is targeting the niche fleet electrification market. To be sure, there are many players in the market now and some of them have backing from big fleet buyers. For example, Rivian is backed by Amazon. Amazon has invested in Rivian and has also placed big orders with the company.
Is it too late to buy ZEV now?
It still isn't too late to buy ZEV stock. Despite the nearly 50 percent surge on Aug. 10, ZEV is only back near the IPO price of $10. The valuations still look attractive and the order from a Buffett backed company is another testimony to the company’s abilities.
ZEV short squeeze
A short squeeze also seems to be happening in ZEV stock. According to data from Fintel, it had a FINRA short volume ratio of over 56 percent on Aug. 9. It’s a textbook short squeeze case is a piece of positive news, which was triggered a buying spree in the heavily shorted stock.