PSTH Stock Is Ideally Placed Before Inevitable Megamerger

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Recently, Pershing Square Tontine Holdings (NYSE:PSTH) was a casualty of the selloff in the hot electric vehicle (EV) space and tech sector. Right now, shares of the special purpose acquisition company (SPAC) are down about 28% from PSTH stock’s 52-week high of $34.10.

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The pressure is finally getting to these risky SPAC plays. While the broader tech sector is now recovering, PSTH is still trading at a deep discount. But that makes for an excellent buying opportunity, since the SPAC’s sponsor is a legendary value investor and the CEO of Pershing Square Capital. Of course, I’m talking about Bill Ackman.

In 2020, Ackman’s hedge fund returned 70% on investments, handily outpacing his 2019 record of approximately 58% as well as the S&P 500. At the height of the pandemic, he thought of liquidating Pershing’s entire portfolio. Instead, though, he opted for a strategy that ended up turning $27 million into a $2.6 billion return. That should help you understand the initial excitement that surrounded PSTH stock.

At this point for the SPAC, though, its fast-approaching July merger-target deadline is now working against it. That has investor anxiety increasing. But there’s still plenty of time for the company to find a viable target. In fact, InvestorPlace contributor Tom Taulli recently put together an insightful list of potential candidates.

So, in my opinion, betting against PSTH in the current environment would not be prudent.

PSTH Stock Is Trading at an Attractive Price

Several SPAC stocks have lost a lot of steam recently. For PSTH stock, though, the lack of a merger target is adding fuel to the fire. Time is running out. And with Stripe and Airbnb (NASDAQ:ABNB) now out of the question, investors are getting cold feet. Even though Ackman is one of the greats, skepticism is rife.

However, there are still more reasons to stay invested at this crucial stage. Like I said, Ackman is one of the greats. As Josh Enomoto aptly put it, “SPACs often live or die by their sponsors.”

Putting it that way, PSTH stock is still an enticing bet. Plus, it’s just not like other SPACs. According to its S-1 form, the company is looking, “to facilitate the recapitalization and public offering of a Mature Unicorn on terms that will generate attractive returns.” In a nutshell, the merger target is supposed to be a startup worth over $1 billion. It should also have reliable, strong revenue streams.

Most of the time, SPACs are bringing EV and fintech startups to the market. At their early stages, these firms don’t have a robust operating model or stable income. Plus, they often take years to consolidate their positions within their respective industries. In contrast, Ackman is on the lookout for big, established private companies.

What Went Wrong

So, with PSTH stock checking those boxes, why are shares trending lower? Well, as we’ve established, investors are unhappy that there’s no merger target yet. Plus, the company has had a few misses as well: Stripe and Airbnb were touted as targets until things fell through. Stripe is out of the equation because of a $600 million funding round that raised its valuation to $95 billion. Meanwhile, Airbnb decided to debut on its own in a blockbuster initial public offering (IPO).

Last October, though, the New York Post reported that Michael Bloomberg and Ackman were in talks to take a portion of the Bloomberg media empire public through PSTH. We have not seen major traction on that end. However, Bloomberg is exactly the kind of merger target Ackman is looking for.

Recently, InvestorPlace Web Editor Sarah Smith pointed out how this could be an excellent investment for Ackman considering the $44 billion megamerger between S&P Global (NYSE:SPGI) and IHS Market (NYSE:INFO). This was a huge deal in 2020 and shows the value of financial data. So, the prospect of taking a slice of Bloomberg public is an exceptional opportunity.

There are also rumors that PSTH could even take Starlink public instead. An Elon Musk venture, Starlink hopes to provide internet access across the globe through private satellites.

Rumors aside, though, the bottom line is that PSTH still has several options. Many of these candidates could still be a good fit as a merger target for Pershing Square.

Wrong Time to Bow Out

To the investors exacerbated by PSTH stock, I hear you. Bill Ackman is cutting it close and time is not on his side. Plus, we recently saw that Richard Branson-backed VG Acquisition’s (NYSE:VGAC) merger announcement with 23andMe wasn’t received well. VGAC stock is down nearly 11% in the last three months. Hence, even the best of investors can make mistakes.

However, at this stage, I would still be willing to bet on Ackman based on his track record. As we get closer to July, the anxiety will undoubtedly rise. But even a small position in PSTH has potential to double once a deal is announced — and that should be soon.

After all, Ackman has already announced Pershing Square Tontine Holdings II and we should not forget that he was the man behind Justice Holdings. That’s the SPAC that brought Burger King to the markets years back.

Bill Ackman is not new to the game and he has a reputation to protect. So, PSTH stock is still worth a place in your portfolio.

On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.

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