Source: shutterstock.com/Tero Vesalainen
One of today’s most-watched stocks is Grindr (NYSE:GRND), the latest hot special purpose acquisition company (SPAC) deal to hit the market. GRND stock officially started trading today, surging on its opening day in a very volatile session. Currently, shares are up more than 200%. However, this LGBTQ dating app previously saw shares surge more than 400% around 11:00 a.m. Eastern.
The highly anticipated SPAC merger between Grindr and Tiga Acquisition is now behind the company. With GRND shares now trading freely, it’s clear that retail investors who weren’t able to get in on the initial public offering (IPO) want a piece of the action.
The stock market is certainly an interesting place and it’s clear today that there’s an underserved demographic of investor that’s ready get into stocks like Grindr. This SPAC deal initially valued the company at around $2.1 billion. However, Grindr was worth closer to $8 billion after quadrupling today. As of this writing, shares now trade for about $43 apiece.
Let’s dive into whether this impressive rally is worth buying into.
Is Now the Time to Buy GRNDR Stock?
Typically, the first trading day following an IPO or SPAC listing can be the most volatile. That’s because the market generally takes a hard look at the valuations these companies trade at, resulting in a process of price discovery which can provide big gains or losses on a stock’s first day in the market.
Interestingly, most SPAC deals have fallen flat of late. Investors are avoiding these early-stage companies, generally due to a lack of earnings and relatively high valuations. On the valuation front, Grindr has a lot to prove.
That’s because, despite this company being valued so highly, revenue for the first half of the year came in at only $90 million. Thus, for a company with an annualized revenue run rate of around $180 million, GRND stock trades at a whopping price-to-sales multiple of 44 times based on its rally peak. That’s hefty, even for high-growth companies.
Additionally, unlike peers Bumble (NASDAQ:BMBL) and Match (NASDAQ:MTCH)-owned Tinder — which have 9% and 18% of their total users paying for their services — Grindr’s share of paid users as a percentage of total only comes in at 6%, according to Barron’s. These numbers will need to improve over time for its valuation to make sense.
To me, today’s rally appears to be unsustainable. Price discovery will continue and the market will ultimately determine what Grindr is worth. While GRND stock should have its moment in the limelight, that doesn’t mean it’s a great investment at these levels.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.
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