IPOE - Social Capital Hedosophia's Merger With SoFi Is a SPAC Star
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Investing in special purpose acquisition companies (SPACs) was heaven last year. But of late, almost all of them have fallen back to Earth. Even famous ones like Pershing Square (NYSE:PSTH) and Churchill Capital (NYSE:CCIV) cannot find footing. Their stocks are unable to get out of their bearish downtrends for months. Today, we focus on Social Capital Hedosophia Holdings Corp. (NYSE:IPOE) stock. It too has suffered as it sits nearly 40% below its January highs. In addition to the lack of interest in the sector, this one had specific problems of its own in its merger with personal lender SoFi.
This week the news is that the merger is back on track, so investors are in a holding pattern. My concern is that I don’t see the benefits of good news in the chart. What had already been going on with IPOE stock chart continued. The lower-high trend keeps knocking against the floorboard below. If it breaks and the stock falls below $15 per share it’s likely to lose another $2 from there.
Comments like these will not make me popular in social media. These stocks elicit high emotions among newer investors. But if we let sentiment cloud our judgment, errors happen. Just mention that “it’s a Chamath Palihapitiya company” and people will know it’s a risky SPAC.
SoFi’s Business Model Is Attractive
In general, I’m not a fan of the SPAC concept. I believe in a long, arduous road to an initial public offering, or IPO, which can help an investor uncover potential problems. It worked in the case of WeWork and saved investors billions. If you want more proof just consider what happened with Nikola (NASDAQ:NKLA).
Nevertheless these are not the rules — and in this case, SoFi has a viable business model.
I am a big fan of empowering consumers to handle their own finances. The bud of the SoFi concept was to allow people to consolidate their debts. This is a matter of safety because there are a lot of questionable debt consolidation programs out there. Those who need it are usually vulnerable, and SoFi is a viably safe alternative.
I would even classify this as a Fintech opportunity. It’s a hot topic on Wall street and for good reason. By visiting SoFi.com website you can clearly see they are trying to expand their revenue sources. The sky’s the limit for them, and technology makes that possible. They are even getting into the crypto-sphere.
Regardless of how they come to market, the IPO will bring in funds. That’s important because with then management can aggressive implement growth plans. The fact that a successful billionaire is behind it is somewhat comforting, but not blindly. There simply are too many opportunities on offer from Palihapitiya. It’s almost like throwing spaghetti on the refrigerator to see what sticks.
IPOE Stock Charts Shows Breakout Opportunity
I see the value of the business model so I wouldn’t mind being long IPOE stock. But to properly frame it, investors must declare it as a speculative trade for long-term success. It will require patience and discipline. The risk size should remain small until it matures a bit more.
Shorter term, if the bulls can break through $19 per share, they can start chipping away to recover prior highs. This is not likely to be instant gratification and that is OK. However it remains under the positive headline threat until the deal is official.
There’s also the overall risk from the indices. We are still too close to all-time highs, therefore it’s a long ways down. Regardless of how good IPOE stock opportunity is on its own, it has to happen within the whole market prism
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.
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