Pershing Square Tontine Holdings Is Cheap and Has a Significant Upside
Investing in a special purpose acquisition company, or SPAC that has yet to announce its merger target is always a gamble. After all, you’re completely unaware of the type of business you’re investing in. Investing in such a scenario is a bet on the SPAC’s sponsor. Enter legendary investor and hedge fund manager Bill Ackman’s Pershing Square Tontine Holdings (NYSE:PSTH). Even absent an announced target, PSTH stock is trading at an attractive price, and when you add Ackman’s solid track-record, it makes for an interesting bet.
The idea of buying a SPAC without a merger target isn’t all that risky. With some effective due diligence, you’ll know about the team behind the company and their past performance.
If you’re lucky, the managers might be Chamath Palihapitiya or Bill Ackman, who have enjoyed immense success in the investing world. This is what separates the best SPACs from the others.
PSTH Stock Price Performance
From the chart above, we can see the price performance of PSTH stock over the past three months. The ebbs and flows are apparent from the graph, but we can see an overall positive growth pattern until mid-February. Investors have been waiting for the company to announce a merger target, and its ability to do so has weighed on the stock price.
The stock has declined for the most part in the past couple of months and is down roughly 14% this month. We are still unaware of what company PSTH stock will merge into at this point. From what we know, it plans to merge with a “mature unicorn” that has “significant scale, market share, competitive dominance, and cash flow.”
After raising $4 billion in its June 2020 initial public offering, its investing universe is limited. However, there are a few major targets that it could potentially take public.
The shares currently trade around $25. From the looks of it, PSTH stock is incredibly overvalued. However, if we factor in its massive net asset value, the stock is trading at a considerable discount at this time. If we look at the top SPAC stocks, their net asset values are significantly lower than PSTH and are still trading at high premiums.
Another Stellar Year For Bill Ackman
Bill Ackman rounded off another blockbuster year with his Pershing Square Holdings fund. Its net asset value shot up by 65% through December last year. Additionally, the fund’s shares returned 75% last year, compared to the S&P 500 Index’s total return of roughly 16%. It represents a relatively narrow net asset value, which topped 30% last year. For several years now, the fund has been trading at a considerable discount to its net asset value.
Ackman had a forgettable run from 2015 to 2017, when his fund’s net asset value dropped approximately 30%. Additionally, it trailed the S&P 500 by roughly 60%. However, since then, it has come back in a significant way.
Since the IPO, PSTH stock is up more than 18%, modest considering its net asset value. Ackman is likely to have a better this year and announce a merger target for PSTH stock soon.
Bottomline on PSTH Stock
PSTH stock holders still have no idea what Bill Ackman is going to do with the $4 billion raised last year. With no merger target as of yet, investor enthusiasm surrounding the stock is primarily linked to its manager, who has had an impeccable investing record. Moreover, it trades at a discount based on its net asset value.
Though it has limited targets to choose from, a mature unicorn could massively benefit from the merger and push its price higher. Therefore, you should buy the dip in PSTH stock.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University. He does not directly own the securities mentioned above.
