I can't decide if we have disaster or opportunity sitting in front of us.
We had yet another disaster from the SPAC space. Nikola (NKLA) still sits atop the trash heap in terms of misleading investors, in my opinion, with their portrayal of how far along their trucks actually were compared to reality. That's the one sentence version but I could spend an entire piece outlining the gray areas and fuzzy details of their business.
Lordstown Motors (RIDE) followed up with orders that weren't really orders. Again, we could spend a lot of time on that one but let's sum it up as another case of semantics that made the company appear more successful than it was.
Now, we have to add Momentus and Stable Road Acquisition Corp. (SRAC) to the pile after the SEC charged the companies and two executives, stating investors were misled about Momentus' technology and security risks associated with its former CEO. Allegations were resolved via an $8 million payment, hardly a dent in the merger of SRAC and Momentus, but certainly a bad look for the industry as a whole.
PIPE (private) investors will have the opportunity to walk from the deal, so there is question as to whether the merger will actually take place. Founder shares will be lost if the merger does go through.
I guess we shouldn't have been surprised when the deal valuation was lowered to $700 million from $1.2 billion. It's obvious, in my view, the two sides knew what was going on with the SEC and jumped in front of it to make the deal more palatable. Still, when a company states that it successfully tested its propulsion technology in space, but that test failed to meet its objective or prove viability, the word "success" feels like it loses all meaning.
Don't get me wrong, I'm not trying to slam on SPACs alone. The recent Didi Global (DIDI) mess is easily in the same class, if not worse. Losing your Apps in China and immediately guiding revenue lower shortly after your IPO hurt investors as bad as all of these SPAC stumbles.
So, out of this mess, do SPAC-related names or Chinese companies transform into disasters or opportunities?
That's a tough one to answer.
We've certainly seen SPAC momentum come to a grinding halt. The few attempts I've made at upside plays in the past week have gone against me quickly. Then again, the entire small-cap and momentum sectors have been brutal while buyers all rotate into a concentration of names.
If you're time frame is more than a few weeks, I do believe there is opportunity here. Many aggressive valuations have been burned away and many investors have already been burned chasing.
For Chinese names, I think some of the tried-and-true names that have been trading for years now likely continue without incident, but newer names are immediately drawn into question. I wouldn't be ready to abandon this group entirely yet either.
In the end, I see opportunity for patient investors but calling the bottom is a power I simply don't possess, so legging into positions is a must.