Should you invest in blank check companies?

Blank check companies also know as SPAC’S (Special-purpose acquisition company) are companies that aren’t yet publicly traded on the Stock Market and uses another company that they put a lot of capital in to help them by merging the two companies together.

This means the shareholders of the other company automatically get the shares of the company that they are merging with and there other shares disappear.

Though many of these companies have a build-up reputation in the Industry they are in, as well as have a balance sheet where you can see how they perform over time.

The SPAC market as of 2020 has rallied a ton and gone up like CRAZY.

Is this really justified in the performance of the companies? This is indeed a hard question to answer but it might be due to the volume of new investors going into the market due to Covid-19.

Also, it might be due to the fact that the overall SP&500 index (meaning the top 500 US companies) have gone up a ton because of the fact that the Federal Reserve started printing more money to help out US-based companies and save them from bankruptcy.

The SPAC market is indeed a hard topic because it’s not a sector and all the companies function in different industries and with different amounts of capital/publicity.

One sector that has outperformed the SP&500 with an insane amount is the “Electric Car” sector. This sector is heavily talked about amongst traders and some think that it’s a bubble and some think it’s the future.

Regardless of what you think you should consider that many of these companies have a VERY HIGH price to earnings (p/e) ratio.

This indicates that they are heavily overpriced as of what they currently earn in income. It also indicates that people have HUGE EXPECTATIONS on the company in the future and if the company can’t deliver what the shareholders expect there will most likely be a huge drop in the share price.