Without A Partner, Pershing Square Tontine Holdings Looks To Have Diminishing Returns

0
Without A Partner, Pershing Square Tontine Holdings Looks To Have Diminishing Returns
Image source: CNBC Video Screenshot

Traders are keeping PSTH stock in a tight range suggesting that there’s little upside for now

Get The Full Series in PDF

Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q4 2020 hedge fund letters, conferences and more

After debuting at $20 per share, a premium price for a special purpose acquisition company (SPAC), shares of Pershing Square Tontine Holdings (NYSE:PSTH) look to be trading in a range. Like expectant parents, traders in PSTH stock are waiting for the white smoke to finally billow from Bill Ackman’s chimney announcing that the SPAC has found a target.

Retail Investing Trends With TradeZero America’s Dan Pipitone

RetailValueWalk's Raul Panganiban interviews Dan Pipitone, co-founder of TradeZero America, and discusses his recent study on retail investing trends. Q1 2021 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview with TradeZero America's Dan Pipitone ValueWalk's ValueTalks ·


Will it be worth the wait? And is that a reason for the stock to be trading at nearly $30 per share? Those are two excellent questions that InvestorPlace contributors have seemed to answer with “who knows” and “not likely.”

Still PSTH is drawing a lot of interest and trading volume so let’s take a closer look.

What’s In a Name?

The two salient points surrounding PSTH shares are the fact that it is a SPAC and that it is owned by Bill Ackman of Pershing Square Capital. It’s worth paying attention to both points.

2020 will be remembered as a year when SPAC’s went mainstream. SPAC Research said there were 248 companies that announced they would go public via a SPAC. As Texcan Gecgil wrote: “By merging with a SPAC, a privately held business can avoid going through extensive steps to become public.”

While this does not ensure that a SPAC carries more risk than a traditional IPO, it does mean that investors don’t have as much data to work with. However one piece of data they do have is the name of the SPAC. And in this case, Pershing Square Tontine Holdings brings Bill Ackman to the party.

Will Ashworth believes that’s a bet worth taking. Ashworth describes traders who are betting on Ackman in terms of a hockey team riding a hot goalie. I always appreciate a good sports analogy. I’ll have to take Ashworth’s word for it. Right now, it looks like traders are holding their powder.

PSTH Stock Looks Range Bound For Now

It seems that investors have decided that, for now, PSTH is worth somewhere between $26 and $30. On three separate occasions in 2021, the stock has closed above $29 per share. However it’s fallen back all three times.

As of this writing, PSTH is making another run at the $30 mark. If it pushes past, the stock may enter a whole new level of craziness. But it’s more likely that traders will take that opportunity to take some profits and pick up some shares again when it goes down.

This makes sense since Pershing has nothing to announce at the moment. Ackman has approximately 17 months to find his “mature unicorn”

It’s a rinse-lather-repeat scenario that looks interesting to me, but doesn’t get me excited.

Who Is the Target?

That would be more interesting to know. But the investment community doesn’t know yet. Perhaps even Ackman doesn’t know yet. And that’s likely why traders are hedging their bets. They don’t want the stock to fall too far, but they want to leave room on the upsides as well.

But how high should that upside be? As Mark Hake laid out for InvestorPlace readers, at $29 per share, PSTH is trading “at a 45% premium to its inherent $20 redemption price in less than two years.”

And Ackman’s SPAC was already trading at what some investors might seem to feel is a premium at its $20 opening price.

How High is Too High for PSTH Stock?

Let’s say that PSTH stock makes a break to the upside. How far above $30 will traders be willing to go prior to Ackman announcing a dance partner? I don’t have skin in the game so it’s tough to say. But I imagine that investors would need strong hands to hold the stock after that point.

When I wrote about PSTH stock for the first time a month ago, it had not yet tested the $30 mark. I believe that it will climb significantly once Ackman makes an announcement. However at nearly $30 per share, I see more risk than reward without that partner being named.

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

Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.

Article by Investor Place

No posts to display