WTF is Happening to Spire Stock – SPIR?
There’s no such thing as a free lunch. That’s the title of a book by economist Milton Friedman that business school professors expect you to read as part of your bee school experience. It’s a dreadfully boring book that you can skip by simply pondering what it says on the tin. The saying “there ain’t no such thing as a free lunch” was in use well before Milton Friedman’s dreadful book. It apparently came about when bars served free lunches containing loads of salt so that patrons drank enough beer to more than compensate for the free food they were offered.
This old American proverb is particularly applicable in today’s age of crypto cults that believe assets with no intrinsic value only move upwards.
Everyone wants to believe there’s an easier way to get rich, so the length of time in which they expect to see gains has dramatically decreased. Newbie investors are particularly guilty of this sin – confusing short-term price appreciation with the quality of a business. This is only amplified by all the FOMO coming off get-rich-quick crypto stories.
When a stock price starts moving strongly in one direction, it’s usually because new information has been made available. If you can’t find any new information, subject it to the second litmus test. Is the stock moving erratically in all directions? If the answer is yes, you’ve likely stepped on a landmine of manipulation.
A Short Fling With SPIR
Our tech stock catalog contains 351 stocks. Almost 18% (63) are special purpose acquisition companies (SPACs), one of which is Spire Global. It’s a stock we first wrote about in our piece titled Spire Global Stock Offers NanoSatellite Pure Play, and shortly afterwards, we bought some shares. That didn’t last long once we learned that Planet is planning to have an IPO – unfortunately, also using a SPAC.
We sold our SPIR stock for two reasons. First, because they were playing second fiddle to Planet. We always look for the leaders in any particular domain and that’s where we place our bets. Second, because Spire Global hadn’t completed their merger. As we talked about in our piece on Why Popular SPACs Are Falling, these types of mergers aren’t guaranteed to close. There’s always a chance they could fall through and you could suffer meaningful losses. A simple rule to protect yourself: If you’re going to buy a SPAC, wait until the ticker changes.
Whenever we decide not to invest in a stock, we don’t experience any FOMO if it jumps. And that’s exactly what Spire Global stock did.
WFT is Happening to Spire Stock?
Imagine you bought shares of Spire Global the day their merger completed at $10 a share. They traded around that price for any number of days following the merger, so let’s assume you backed up the truck. And as you well know, once you buy a stock, you’re always watching the price to validate your decision. You know what we’re talking about, don’t you?
Let’s say one day SPIR stock rose +20%. You’d be stoked, right? Well, what if SPIR rose another +13% the following day, and another +15% the day after that. You’d be really stoked, yeah? Well, what if it soared +22% the following day and then +28% the next day? You’d start identifying as the second coming of Nostradamus. Over those five days, you would have seen your investment peak at a +95% gain. But all that excitement would have quickly faded when this happened during SPIR’s last trading session.
Now you’d be feeling like absolute shite. SPIR jumped +95% and even with your Baba Vanga investing acumen, you didn’t have the cojones to pull the trigger and capture that alpha. Now, you’re down nearly -30% on your high-flying tech stock, and you’re questioning your original decision. So you decide to sell next trading session, only to see the stock price soar +30%. So you buy back in, and it falls again, so you blah blah blah…
We’ve all been there. What you’ve come across is a stock that’s now being manipulated by day traders who are feeding on human emotion. Well actually, calling these people “day traders” spits in the face of every BSD prop trader out there. It’s actually a bunch of baboons over on Reddit posting drivel like this:
Sure, this lad/lass may be employing some sophisticated technical analysis to arrive at their conclusions, but the real winner here is the AI algorithm at Renaissance that read this diatribe about 2 milliseconds after it was posted and that’s now fleecing the Robinhood weekday warriors that ape into every get-rich-quick trade they can find.
Let’s get back to the original story we started out with – an investor who bought shares of Spire Global at $10 a share and is now under water -30%. What should that person do? That’s an easy answer. You buy more, and use dollar-cost-averaging because this bronco is going to buck for a while.
How Low Can SPIR Stock Go?
For some reason, every investor out there has that moment where they think a stock won’t breach some arbitrary stock price target. “There’s no way Spire Global stock will fall below $7 a share,” you’ll hear them state emphatically. Well, it certainly can, because Spire Global shares are still fairly rich, at least according to our simple valuation ratio.
- Market Cap / Annualized Revenues
1,035 / 36.44 = 28
If Spire Global was valued the same as Tesla – a simple valuation ratio of 16 – then shares would be trading at $4 per share. So before you back up the truck, accept that there’s no reason why Spire Global couldn’t trade down to those levels.
We’re now coming up on 1,000 words in this article and we haven’t once talked about Spire Global the company. We’ve simply discussed stock price volatility, which by now you should realize is a complete waste of time. It distracts from metrics long-term investors should be paying attention to – like revenue growth. Spire Global’s SPAC deck promised us $56 million in revenues for 2021, and the first two quarters are telegraphing a trend that’s going in the wrong direction.
As with all SPACs, Spire Global needs to justify their lofty valuations by showing us the revenue growth they promised. Let’s hope they make up the distance in Q2/Q3 2021.
Update 10/03/2021: A reader pointed out that we incorrectly calculated our simple valuation ratio at 50. That’s because the market cap on Yahoo Finance appeared incorrectly – or one of our MBAs was really baked. That’s been fixed. We also note the acquisition of exactEarth which adds roughly $6 million per quarter. We’ll wait for those numbers to be aggregated prior to adjusting the ratio.
The point still stands though. Shares can fall well below where they sit today because this stock is now being manipulated by Reddit types.
SPACs and Volatility
It seems like every other day we’re finding a new reason to avoid SPACs. A recent article by the Wall Street Journal (we don’t link to paywalled articles) talks about how SPACs are now the latest target of stock manipulators over on Reddit who are directing their minions to move stocks in the direction that suits them.
Quality stocks aren’t subjected to such volatility because institutional investors will quickly step in and provide price support. It’s why Johnson & Johnson (JNJ) has a stock chart that looks like this.
JNJ could arguably be one of the best stocks to own if you could only hold one stock. Not only has JNJ increased their dividend for 59 years in a row, they’ve also shown superior capital appreciation. Over the past 40 years, JNJ returned +6,958% vs. an S&P return of +3,434% over the same time frame. Getting filthy rich is about time in the market, not timing the market. And it certainly doesn’t involve going balls out on crypto to obtain a significant advantage over your peers.
Spire Global is one of 63 SPACs we’ve looked at. Like the others, they’ve made lofty promises about future revenue growth. Short-term price volatility does nothing to assure us that the company will hit their revenue targets. Right now, the trend is not our friend.
Investors who believe that Spire Global offers a superior value proposition to geospatial intelligence leader Planet should be stoked right now. You can buy a quality company at a discount. At least you better hope it’s a quality stock. Keep your eye on the metrics that matter, and you’ll probably want to pick up some melatonin.
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It seems to me that your calculation is not entirely accurate. Based on Friday’s closing price, Spire’s market cap is 1.04 billion according to Bloomberg and WSJ. In addition, Spire recently made an acquisition. Therefore, the revenue of the acquired company should also be included in the calculation o reflect a more timely picture of Spire. https://www.exactearth.com/2021-09-14-exactEarth-Announces-Q3-Fiscal-2021-Financial-Results-and-Agreement-to-be-Acquired-by-Spire-Global
That’s a very good catch Thomas, thank you for taking the time to point that out. We’ve updated the article to reflect that as it does make quite a difference, especially when you include the newly acquired revenue stream.
Back of the napkin math says if they pull in at least $10 million per quarter in the second half of 2021 – plus $6 million per quarter for the acquired company – that gives them: $18.83 + $20 + $12 = $50.83 million which takes them a lot closer to that $56 million target.
I own a block of SPIR. I own 50 SPACs and own no more than 1k of a stock. I also own a similar amount of Black Sky and Planet and a smaller amount of the Argentina Company that is launching sattlelite. I am not particularly concerned with this. A couple of weeks ago I was putting this in my winner pile along with Rocket Lab and Matterport. Then it crashed. The fool attributes this to a September 23 filing of an S1 to sell 80 million shares. I thought it was for acquisitions but 50 million is for certain members of the PIPE to have marketable or should I say dumpable shares. Personally I think we are dealing with the dumbest or smartest bunch of insiders I have seen in awhile. When a company stock starts to run like SPIR did post merger most companies ride it out. Someone crashed the party. I don’t know and am dying to see how much shorts are into the stock. We may be holding a future short squeeze here. I doubt we are will see a bankruptcy. The company has good tech, have birds in the sky and and are still getting business. They just recently got a deal to take part in the survellance of space junk.
These SPAC are all into emerging markets. Will they all win. No but a few winners will offset a number of losers. I find it humorous that an analyst who upgraded the stock when it was going up published a report that says there is still room for the stock to drop 180%. My back of the napkin math says any stock that drops more than 100% means there is someone out there who will buy my worthless stock. I don’t think so. I am not worried about the reddit crowd with the market. I am more concerned with the Buffets who are ticked at their loss of future profits and the Blumenthals who just said congress should take care of us and prohibit us from buying a SPAC.
Hey Jim. Thank you for sharing your own experiences as it’s always insightful to hear what other investors think.
Tech stocks are volatile. Is it fair to say that you’ll only truly know the “winners” a decade from now? That’s when real wealth gets created – over long periods of time. In the short term, there will be loads of volatility, especially with the Reddit types poking around. Just remember that the people who are moving Spire’s stock price right now don’t care much about the underlying business. We liked Spire when we looked at it initially but chose Planet over them. There’s nothing wrong with SPIR that we could see – aside from their competitor being Planet – so perhaps it’s a buying opportunity.
That’s the right way to think about it – a few winners offsetting many losers. Tech stocks are quite risky and there are many more failures than success stories. It’s why we think a risk averse approach is merited. Your 50 SPAC portfolio is very well diversified, and it’s an interesting strategy, but as you know we’re very skeptical that SPACs were ever priced properly in the first place so we’re bearish on the entire “asset class” if we can call it that. The retail investor always gets the short end of the stick in these deals and time will tell just how many can do what they promised.
I did see that article stating SPIR could DROP 180%. That looked to me like a boiler plate write up with the SPIR inserted. The entire article had the calculations backwards. It MEANT to read that SPIR could rise 180% to it’s previous high after falling 45+%. It was a clear case of poor proofreading.
Tech stocks are volatile. Is it fair to say that you’ll only truly know the “winners” a decade from now?
I don’t know if it will be a decade but it won’t be tomorrow and will vary with the stock. I have settled on a portfolio approach. I got into Spacs last year. Most of the losses I hold are in Spacs I bought early because I liked the companies. These particular stocks have not performed as I anticipated but I think they are still good prospects. I still love the Spac process because it has given me access to companies I would never have seen if they waited for the normal IPO process. I still have hopes and confidence in the future. I agree the market is stacked against the little investor. But I don’t want to dwell on it as it is very easy to become paranoid in the market.
I use the Lynch approach to the market. Look at the economy, then the industry and after you have bought into the first two pick your stocks. I supplement this with one other observation since the 1980’s crash. People have a whole lot of money and “where else can you put your money”? I am very satisfied with what I own today even with all the turmoil. Whenever I have doubts or the market crashes the first thing that comes up is where else are people going to put their money.
Sounds like your approach has been well thought through and you’ve had enough time in the market to take away some good lessons and experience. You losses are on paper, and it’s early days. It’s tough to feel good about a stock when you’re down over 40% on it (TeamViewer, cough, cough..), but if your thesis hasn’t changed, then it’s just buying the same known good at a major discount. The volatility we’re seeing now with some SPACs means that watching prices can be very never-wracking and play on one’s emotions. Human emotion is the bane of successful investors.
you state that you sold SPIR for two reasons. One is that the merger isn’t final yet. However, they merger finalized in August and the ticker changed at that time.
Yes, and the second reason? That’s because they play second fiddle to Planet: https://nanalyze.com/2021/07/planet-stock-geospatial-intelligence/