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.

The worst financial advice ever dispensed - Credit: Twitter
The worst financial advice ever dispensed – Credit: Twitter

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.

Spire Global Stok chart
Credit: Yahoo Finance

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:

Article from Reddit
Posted three days ago – Credit: Reddit

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.

Quarterly revenues of Spire Global from Yahoo Finance
Credit: Yahoo Finance

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.

Headline from Wall Street Journal
Credit: WSJ

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.

Johnson & Johnson (JNJ) has a stock chart on the upward scale
+6,000% in 36 years

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.

Conclusion

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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