Switchback Energy Stock Remains a ‘Sell the News’ Situation

It’s no shock that the enthusiasm for electric vehicle stocks continues. The “blue wave” election results out of Georgia may mean a more aggressive pivot towards electrification of cars and trucks. But, even that may not be enough to sustain Switchback Energy (NYSE:SBE) stock at its current price levels.

With its merger with charging company ChargePoint still pending, SBE stock investors are anticipating a bright future ahead. However, just like with that political news, the tie-up is a factor more than priced into shares. So far, investors have “bought the rumor, bought more on the news” when it comes to hot EV plays.

So, instead of following this new twist on an old adage, it may be best to follow the original maxim. That is to say, “buy the rumor, sell the news,” with SBE stock. EV bulls continue to crush it, much to the chagrin of those skeptical of stocks in this richly priced industry. Yet, while it’s impossible to call a top, we could be fast approaching such a situation.

Between the possibility of growth falling short of expectations, and this much-discussed “EV Bubble” finally popping, getting out while the going’s good may be the best call with this EV SPAC (special purpose acquisition company).

SBE Stock’s Floating On An EV Bubble

Names like SBE stock thrived in 2020. But, can the EV bubble survive 2021? Right now, sentiment says yes. With the party more favorable to “green” policies now at the helm of the U.S. government, this sector has wound up with a tremendous tailwind.

EVs were a major campaign issue for candidate Joe Biden. But, that doesn’t mean they’ll be a key priority for President Biden. Sure, there are many ways the incoming administration could accelerate the push toward electrification. Yet, given how the Obama’s administration efforts to build a green economy produced underwhelming results, it may not be wise to put the cart before the horse.

Admittedly, the environment (no pun intended) for a green economy is much brighter now than it was in 2011. No longer a niche policy interest, big business has hopped onto the going-green bandwagon with full force. Coupled with popular support with more green policies among younger generational cohorts, massive investment/support from the public sector may pay off this time.

Yet, that doesn’t guarantee additional gains lie ahead for stocks in this sector. The dotcom bubble got ahead of itself at the dawn of the internet revolution. The same dynamic could be playing out here with EV stocks. With this in mind, today, when stocks in this sector are at (or near) all-time highs, it may not be the time to enter a long-term position.

Along with this sector-wide concern, there are issues pertaining to Switchback stock, that may indicate big downside for those entering a position at current price levels.

SBE Stock is Riskier Than It Looks on Paper

At first glance, Switchback (soon to be ChargePoint) appears to be a less-risky EV play. Given it’s a middleman in today’s EV gold rush, no matter who dominates the industry, this company could thrive.

However, there’s no guarantee that selling EV infrastructure will turn this early-stage company into a cash cow over the next decade. Namely, an issue I discussed in my last write-up on SBE stock: demand for its charging stations may be limited, as we remain in the pandemic’s “new normal.”

Before the outbreak, the company found success selling its technology for use in out-of-home venues like office parks. But, as remote work remains the temporary (and perhaps long-term) norm, the coming years could remain challenging for ChargePoint.

But, that’s not all! Others have pointed out key concerns to be keep in mind before diving in at today’s prices (around $42 per share). As InvestorPlace’s Chris Markoch wrote late last month, competition may be tougher than expected. As this Seeking Alpha commentator said in December, the company’s projected rate of growth may be out of sync with how its actual growth will turn out (based on prior year results).

Put it all together, and it’s clear SBE stock, while playing the middleman role, is still a risky gamble on the rapid shift from internal combustion engines to fully electric vehicles.

Time to Sell the News

With politics and its upcoming merger priced-in, there’s little left — outside the overall EV bubble — to send Switchback stock parabolic one more time. And, with the risk that said bubble is ready to pop, diving in at today’s prices may not be the wise move. No matter how bright the prospects for the electrification megatrend seems right now.

So, what’s the play with SBE stock? Avoid it if you don’t own it. And, if you bought on the rumor? Sell on the news, even as others continue to price shares at unsustainable levels.

On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.

Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.