Gores Guggenheim’s Outlook Has Improved, but It’s Still a Sell
Since I wrote my previous, bearish article on Gores Guggenheim (NASDAQ:GGPI) stock, published on Dec. 20, the shares have become more appealing. Gores Guggenheim, a special purpose acquisition company (SPAC), has agreed to merge with Swedish electric-vehicle (EV) maker Polestar.
There are two main reasons for the increased allure of GGPI stock. First, the spike of oil prices, sparked by the invasion of Ukraine by Russia, has made electric vehicles in general much more attractive. Secondly, GGPI stock has shown resiliency during the current “tech wreck” and is reportedly well-positioned from a technical perspective.
Overall, however, I continue to believe that Polestar’s weaknesses outweigh its strengths.
Polestar’s European Advantage Has Intensified
With the price of Brent crude oil pushing $100 and likely to climb higher in the next few weeks, the price of driving conventional automobiles will get even steeper in Europe.
Already, partly due to taxes, gasoline prices are quite prohibitive in Europe. For example, about a month ago, gasoline already cost 1.71 euros per liter, or about 6.50 euros per gallon, in Germany. And in the U.K., an organization is warning that, in the wake of the Russian invasion, gasoline prices could jump to 1.5 GBP per liter, or nearly 6 GBP per gallon, which equals almost $8 per gallon.
Electricity prices are also likely to climb in Europe due to spiking natural gas prices in the wake of the invasion. However, the cost of charging EVs was, at the beginning of 2022, a great deal lower than filling up an automobile with gasoline. For example, fully charging an EV at the beginning of the year in Germany cost just 19 euros and slightly under 14 euros in the U.K.
These Advantages Are Not Likely to Fade
Additionally, I believe that European governments will look to do what they can to keep a lid on electricity prices, since electricity is considered a necessity on the continent. On the other hand, because European nations generally have great public-transportation systems, and the EU is looking to phase out gasoline-powered vehicles, I don’t expect most European governments to take steps to make gasoline cheaper.
As I mentioned earlier, Polestar is based in Sweden. And in my previous column on GGPI stock, I noted that, because, the company is headquartered in Europe, it “may …better understand the needs and desires of European car buyers.” As a result, the company could benefit significantly from the higher demand for EVs that’s likely to occur in Europe the wake of the recent oil-price spikes.
GGPI Stock Has Shown Resilience and Has Solid Technicals
Meanwhile, GGPI stock has shown a great deal of resilience during the downturn of tech stocks, aka the “tech wreck” over the past few months. In fact, from its November peak of $16.41, to today, the shares had dropped 33% to just short of $11. That sounds like a steep drop, but many, if not most, growth stocks in general and EV stocks in particular have tumbled much further over the last few months.
Moreover, as of Feb. 28, the shares had fallen just 6.4% in 2022.
The stock’s relative resilience, in turn, suggests that the “big money” is fairly upbeat on Polestar, compared to other EV names.
Additionally, according to InvestorPlace contributor Chris Tyler, who excels at reading stock charts, as of Feb. 23, Gores Guggenheim was “forming a weekly chart inside candlestick pullback pattern after rallying off January’s relative low this month,” while the shares’ “stochastics [were] just exiting oversold territory and bullishly aligned.” As a result, Tyler thinks that the shares pose little risk.
Polestar’s Prior Weaknesses Remain Very Much Intact
In my previous article, I cited two “mixed” reviews of Polestar’s Polestar 2 EV by Car and Driver and BBC’s Top Gear.
While conducting research for this article, I found a third mixed review of the EV. Specifically, a Business Insider reviewer praised the EV’s “bold styling, user-friendly tech, and solid driving experience.” On the downside, however, the author cited the EV’s relatively short range of 249 miles and warned that “With its big butt, stocky stance, and overall chunky looks, the Polestar 2 may not be everybody’s cup of tea.”
Additionally, as I noted in the previous article, because the EV is in the crowded, upper-level consumer space, it will have very tough competition from many automakers.
The Bottom Line on GGPI Stock
According to InvestorPlace columnist Mark Hake, the “market value” of GGPI stock as of Jan. 18 was $24.267 billion. The stock is little changed since then, so I’ll assume that the shares’ value is still around $24 billion. Polestar expects its revenue to come in at $3.2 billion this year.
Even if it hits that target, which is questionable, considering the high level of competition that it’s facing and the mixed reviews of its EV, the shares are trading at nearly eight times the company’s 2022 revenue. That’s no bargain.
Conversely, take a look at Ayro (NASDAQ:AYRO), whose market capitalization is only $42 million, even though it had $77 million of cash and only slightly over $1.1 million of on its balance sheet as of the end of Q3. And its price-sales ratio, based on one analyst’s average 2022 revenue estimate, is less than five.
Or Arrival (NASDAQ:ARVL), which has a major partnership deals with UPS (NYSE:UPS) and Uber (NYSE:UBER), but has a market capitalization of slightly under $2 billion.
Given Polestar’s important weaknesses and far-from-cheap valuation, I still recommend selling GGPI stock.
On the date of publication, Larry Ramer held long positions in AYRO stock and ARVL stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.
