Polestar, the Swedish electric vehicle (EV) maker, announced on Jan. 11, 2022 that it had met its target production and sales of 29,000 cars in 2021. However, it has not yet gone public through a reverse merger with Gores Guggenheim (NASDAQ:GGPI). The company said it expects to close the deal in the first half 0f 2022. Meanwhile, GGPI stock trades as if it will become Polestar, and seems to be very cheap.
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The reason is that, based on the Sep. 2021 investor presentation from Polestar, the final company will have 2.125 billion shares outstanding.
Therefore, at today’s price of $11.80 per share for GGPI, the pro forma market value for Polestar will be $25.5 billion. This could be before any extra performance or insider warrants that are likely to hit the market, as well.
Why Polestar Looks Cheap
This “see-through” market capitalization compares very well with the company’s projected sales forecasts. That is especially so now that we know that the company met its 2021 sales goals.
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For example, page 34 of the presentation indicates that the company likely produced around $1.6 billion in revenue for 2021, as the 29,000 EVs were sold in 2021. Moreover, in 2022, the company projects $3.2 billion in sales and for 2023, $6.7 billion.
That implies that its $25.5 billion market cap is only 3.8 times 2023 projected sales. Even if we discount those future sales by a 10% discount fact for 2 years, the present value factor is 82.64%. That lowers the $6.7 billion in 2023 sales to $5.536 billion. As a result, the adjusted price-to-sales multiple is still low at just 4.6 times.
That is very cheap compared to companies like Lucid (NASDAQ:LCID), Rivian Automotive (NASDAQ:RIVN), and Tesla (NASDAQ:TSLA).
For example, Lucid trades for 23 times 2022 sales, and 9.9 times forecast 2023 sales according to Seeking Alpha‘s survey of analysts. It is actually 20% higher on an adjusted present value basis or 11.9 times sales. That is over twice the 4.6 times multiple at Polestar/GGPI stock.
Even more to the point, Polestar is already in full-scale production of electric vehicle sedans, whereas Lucid is still in the start-up phase. We can also show that a similar high valuation applies compared to Tesla and other EV makers.
What Polestar Is Worth
To be conservative, let us assume that GGPI stock is worth twice its present price once the reverse merger with Polestar goes through. Moreover, let us assume that it will take 18 months for the stock to reach that price.
Here is how we can calculate its target price. At twice today’s price, GGPI stock/Polestar will be worth $24 per share. Assuming it takes 18 months for this to occur, the annualized return is 58.7% annually. That means its first-year price target is $19.05 per share.
Right now, there are no Wall Street price targets on the stock — at least until the reverse merger goes through. However, I suspect that as the time approaches where the shareholders are asked to vote on the merger, GGPI stock could begin rising quickly to the $19 to $20 range.
In fact, in mid-November 2021, the stock spiked to over $15 per share. Investors should expect to see this price target hit once again fairly soon.
What to do With GGPI Stock
Long-term investors in the electric vehicle arena should be patient with this company. It has a solid management team and already is in the production of its first electric vehicle sedan.
That is quite a good deal for most investors in special purpose acquisition companies (SPACs). They usually have to deal with less mature companies that are going public or need the SPAC deal cash infusion to get their business plan off the ground.
That is what happened with Lucid last year. It had enough cash to get its factory built out from private sources. But it still needed the SPAC deal cash infusion to fund its roll-out of its first EV.
So investors in Polestar/GGPI stock have a good deal here and can expect a minimum return of at least 59% to $19 within the first year.
On the date of publication, Mark Hake 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.
Mark Hake writes about personal finance at mrhake.medium.com and Newsbreak.com and runs the Total Yield Value Guide which you can review here.
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