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While it is true that SPACs or special purpose acquisition companies have had a good time in the stock markets of late, there have been many exceptions. One of the SPACs to have had a pretty disappointing time in the markets in recent days is Churchill Capital Corp IV (NYSE:CCIV).
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Last week, the stock had tanked by as much as 27% after news emerged that the company had not had any contact with its merger partner. As per a report from Bloomberg back on January 11, that Churchill Capital Corp was in discussions with Lucid Motors with regards to a merger. However, the news that there has been no contact between Churchill and Lucid Motors resulted in a quick selloff in the stock.
This was a piece of news that possibly would not matter in the larger scheme of things if the merger does happen eventually. However, investors do not generally like any kind of uncertainty and hence, it was no surprise that the Churchill Capital Corp stock suffered from a sharp selloff.
While that may be true, there is another important factor to keep in mind for potential investors. SPAC stocks may have delivered significant gains in recent times but there are very few of those stocks that deliver the goods after the merger or over the long term.
The average underperformance of SPAC stocks post-merger is borne out by the data as well. The Churchill Capital Corp stock had its initial public offering in July 2020 and since then the stock managed to deliver returns of as much as 135%. However, the recent drop in the stock price is perhaps an indication that investing in SPAC stocks is perhaps not a sure thing anymore.
More importantly, the Churchill Capital Corp stock also appeared to be overvalued. Towards the end of February, the stock was trading at a multiple of 135 when compared to its free cash flow in 2025.
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