Dreamstime
Stock symbols shouldn’t matter, but they seem to when they’re tied to special-purpose acquisition companies.
SPACs have been having a tough go lately, their shares sinking like rocks—except when they switch up symbols. Then, their stocks pop.
The latest example is Star Peak Energy Transition. The SPAC just wrapped up merging with Stem, a clean-power company. The stock symbol changed to STEM from STPK—and shares jumped, up 4.3% in late trading Thursday. The S&P 500 and Dow Jones Industrial Average, for comparison, were up 0.6% and 0.5%, respectively.
And there are other examples of stock symbol changes driving gains.
(HYLN) shares climbed about 21% around the time it closed its SPAC merger.
(RIDE) shares rose a more modest 4%.
(QS) shares soared 57% the first day that the battery company traded with under QS.
While it’s fun to think that a symbol swap can lift a stock, there are some real reasons why shares rise when deals close.
First, there’s no chance the merger will fall apart. Investors can buy a SPAC because they like the proposed deal, but they still own a SPAC and not the coming business until the shareholder vote is complete. Anytime a SPAC is trading north of $10, the chance of voting a deal down is slim. Shares would fall to around $10 if the merger fell through—and investors don’t want to inflict pain on themselves.
The other reason: Exchange-traded funds and other fund managers generally wait to buy a SPAC only after the merger is done. An ETF interested in electric-vehicle technology, for example, probably until the QuantumScape merger was done to add a position to its portfolio.
Any positive performance for SPACs is welcome these days. The
Defiance Next Gen SPAC Derived ETF
(SPAK) is down about 26% from its 52-week high.
Stem is in that ETF and the situation for its shares is similar. The stock peaked at more than $51 a share in February and has fallen about 47% since then. Investors have lost some of their appetite for new, more speculative companies with small sales and big growth plans.
The drop is even uglier for Hyliion, Lordstown and QuantumScape—shares are down almost 75% from their 52-week highs on average—because they have, essentially, no sales.
Stem, on the other hand, will generate about $150 million in 2021 revenue, mostly from selling hardware such as battery-storage systems. The company also earns revenue by selling battery and grid management software.
Today, Stem is valued at about $3.7 billion based on the 135 million fully diluted shares outstanding now that the merger has closed—roughly 12 times estimated 2025 Ebitda, or earnings before interest, taxes, depreciation and amortization. The market, by comparison, trade for about 15 times estimated 2021 Ebitda. Utility stocks trade for about 13 times and software stocks trade for 25 times estimated 2021 Ebitda.
In the end, where Stem ends up trading depends on management’s business execution—not on the stock symbol.
Write to Al Root at allen.root@dowjones.com
