Upcoming Acquisitions and How to Trade Them

One of the reasons for trading Nikola Motors as it went public was because SPACs (companies that take private companies public) have been doing very well lately. A lot of of it is a precedent around potential big plays Bitcoin, FAANG stocks, and Tesla created for young investors. Now that trading has been made so accessible for everybody with Robinhood and other trading apps, money is being poured into the markets of eager investors who want to get rich quick. I am not saying this is a good or bad thing, but this is what's happened over the years. With that being said, SPAC companies are few of the many 'hype' stocks that I think will be attracting lots of investors. So, after NKLA's trade, I want to share some SPACs and acquisitions that I'm looking at and give you my insight on all of them hopefully before the hype.

Uber

Today, Uber announced that they have agreed with Postmates in an all-stock transaction according to businesswire. The deal is worth over $2.6 billion giving Uber a greater market share. Uber will also get a stronger foothold in Los Angeles and Miami from this transaction to expand their business in major cities that were previously dominated by Postmates.

Taking a look at their financials, they are still on the road to profitability, and this deal will probably set Uber back while the company makes a $2.6 billion dollar purchase.

Uber's revenue each year since 2016 has been rising significantly due to the popular service that this company provides. But as the company grows bigger, so do their expenses. Although revenue continues to climb, net income and operating income are still negative. Operating income has improved by +$3 billion since last June, but this acquisition will most likely add to the expenses in Q3 earnings.

PE ratio last quarter was -$7.74 and is still negative now going off last quarter's earnings. Typically, a negative PE is not a great sign for a company even though you want PE to be low.

Comparing Uber to another competitor like Lyft, Uber appears to be in the driver's seat. Lyft's operating income is actually getting less and less profitable over the years. Uber's total revenues are almost 4X the size of Lyft, and now with Uber's announcement, their market share is going to be even bigger with this acquisition, creating more room for buyers in the market. And as the pandemic started, Uber Eats continued to operate fully. Most of their revenue came from Uber Eats once take-out became a norm in the US.

OPES Holdings

Opes Acquisition Corp. announced last week that they will merge with the privately-owned BurgerFi restaurant business and take it public under the ticker BFI. This is a relatively small acquisition of $100 million but big news for BurgerFi. With 130 locations around the US, sales covered over $145 million according to Restaurant Business. But they expect a decline in sales this year as restaurants closed for some time. However, by 2021, BurgerFi plans to have 55 new locations ready after they receive $40 million in cash to start more ventures.

On their income statement, Opes reported a significantly higher operating loss in income in 2019. However, if you look at the net income from 2018 and 2019, they have come out profitable at the end of the year. See how total revenue and expenses tie in to coming up with an operating income or loss. Notice how Opes makes no revenue. That's generally typical for SPACs as they work in generating income from their acquisitions. But with such high expenses in 2019 of over $840,000, Opes was still able to come up with a little over $1.1 million in net income.

Here is OPES on the daily chart. The passed four days have been rough on this stock. Overall sentiment for the stock price is overvalued as it drops 6.4% by the closing bell. RSI is just under 50, and I plan on watching the prices this week to see where the direction is headed. The article mentioned above also states that at some point in Q3, still not announced, OPES expects to officially merge with BurgerFi which will cause a 13X beat in earnings expectations in 2021 of $143 million.

Just by looking at the chart, Opes acquisitions already had their big pop in price from previous announcements in June. I'm not really looking to profit off the hype in this play, rather I'm looking at long term growth aspects that this merger will create for the popular franchise. The stock still seems overvalued for what it's worth, but the future for this restaurant business seems promising. The whole idea of trading SPACs is all about the hype, and it looks like the hype has already happened. BurgerFi is also not as an attractive deal as the Nikola Motors merger last month; let's be honest, restaurants are just not as sexy as the idea of electric cars.

Conclusion

Both companies discussed today show promise, and I'm excited to see how they perform in the future. I'm still on the lookout for more important mergers and acquisitions and will hopefully write about them soon.

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Disclaimer:

Please note that this email is my personal opinion only. I am not a licensed financial advisor, and any information shared or discussed is not to be construed as investment advice. Trading and investing involves a degree of risk, and is not suitable to all investors. Please consult with your financial advisor before making any sort of investment decisions.