During the pandemic, there was a boom in special purpose acquisition companies (Spacs) in the US. Also known as “blank-cheque companies” or “cash shells”, Spacs were seen as a way of helping technology firms list on the stockmarket without the costs and red tape of a traditional initial public offering (IPO).
However, critics argued that the far more lenient disclosure requirements relating to launching a Spac turned them into a magnet for a wide array of dubious and ill-considered ventures. Already there seems to be a backlash against this type of flotation, with the number of Spacs falling by 80% in the first six months of this year compared with the same period in 2021.
Overly ambitious satellite broadband plans
One Spac that has been particularly conspicuous in the past few months is AST SpaceMobile (Nasdaq: ASTS). It has ambitious plans to provide fast broadband to nearly everywhere in the world via a network of 168 special satellites. Earlier this month its shares surged after it claimed that it had successfully completed the launch of a test satellite.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
It also announced that it has signed deals with several major telecommunications companies, including Vodafone and AT&T, whereby they agree to provide network coverage in return for a share of the revenue. AST has also entered into memoranda of understanding (tentative agreements to pursue a common goal, which are not legally binding) with other carriers such as MTN and Telefonica.
Three key hurdles
However, AST faces three main problems. First, the deals do not involve any upfront payments, but depend on AST being able to build a network that works satisfactorily. Some analysts doubt its technology: Sahm Adrangi of Kerrisdale Capital, who is short the shares, has recently claimed that the group’s satellite design is “destined to fail”. He suggests that it may allow connections in good conditions, but questions whether it can do so reliably enough for commercial use.
Second, if the technology works, the company will have to spend vast amounts of time and money building a large satellite network. Already, AST has had to water down promises to have 20 satellites in place by the end of this year and 90 in 2023; now the aim is to launch five less powerful satellites this year.
Third, AST’s relatively inexperienced management faces intense competition from companies with far more resources and expertise, such as Apple and Elon Musk’s SpaceX, which are trying to do a similar thing. SpaceX hopes to cut the cost of launching satellites dramatically over the next few years. AST’s business model relies on SpaceX not only being willing to launch AST’s satellites, but also to do so very cheaply. Yet since SpaceX is a rival, it is unlikely to be especially generous to AST.
While the space industry offers great potential, AST looks over-ambitious and highly unlikely to succeed. With its shares now down nearly 40% from their 52-week high, I think this is a good time to go short at £195 per $1 at the current price of $8.74, covering your position if the stock goes above $13.74. This implies a total downside of £980.
How my tips have fared
My long tips have produced a mixed performance over the last fortnight, with three rising and three falling. Hays Recruitment rose from 116p to 118p, homeware retailer Dunelm increased from 723p to 787p and streaming service Netflix rose from $226 to $243.
However, industrial and construction-equipment rental company Ashtead fell from 4,162p to 4,046p, retailer JD Sports declined from 126p to 121p and Pets at Home slid from 324p to 301p. Overall, my long tips are making a total net loss of £863.
My shorts have also had mixed fortunes, with three falling and two rising. Remote medicine firm Teladoc slid from $29.97 to $29.34, DWAC, the holding company for Donald Trump’s social-media empire, declined from $24.99 to $22.40, while real-estate investment trust Digital Realty dipped from $118 to $111.50.
By contrast, Chinese real estate firm KE Holdings rose from $16.42 to $18.09, while digital-currency exchange Coinbase increased from $65.26 to $69.93. Overall, my short tips are making a total profit of £4,126, slightly down from £4,140 two weeks ago.
My short and long tips are now making a combined profit of £3,263. There are currently 12 open positions in my portfolio. I am long Ashtead, JD Sports, Hays Recruitment, Dunelm, Pets at Home and Netflix, while I’m short Teladoc, DWAC, Digital Realty, KE Holdings, Coinbase and AST SpaceMobile.
I suggest that you raise the stop-losses on JD Sports from 95p to 100p, Ashtead from 2,005p to 2,100p and Dunelm from 610p to 620p. Cut the price at which you cover Teladoc from $45 to $40, DWAC from $40 to $35 and Coinbase from $75 to $74.
-
Will the Bitcoin price hit $100,000?With Bitcoin prices trading just below $100,000, we explore whether the cryptocurrency can hit the milestone.
-
Inheritance tax receipts jump 11% even before Autumn Budget overhaulOfficial figures show inheritance tax receipts are rising even before the chancellor’s changes to reliefs
-
What is FX trading?Tutorials What is FX trading and can you make money from it? Rupert Hargreaves explains how it works and the risks.
-
The Burberry share price looks like a good betTips The Burberry share price could be on the verge of a major upswing as the firm’s profits return to growth.
-
It’s time to sell this stockTips Digital Realty’s data-storage business model is moribund, consumed by the rise of cloud computing. Here's how you could short the shares, says Matthew Partridge.
-
Netflix has plenty of life in it yet – here's how to trade the sharesTips Netflix still has plenty of scope for growth, says Matthew Partridge, and the shares are reasonably priced. Here's how to play the Netflix share price.
-
Trading: Dunelm will keep growing, here's how to play itTips Furniture retailer Dunelm surged during the pandemic, but its shares have since fallen back. But it is well placed to take more market share from rivals, says Matthew Partridge. Here, he explains how to play the Dunelm share price.
-
Ashtead – a building equipment rental firm on solid foundationsTips The prospects for Ashtead, the building-equipment rental firm, are auspicious. Matthew Partridge explains the best way to play the share price.
-
A recruitment firm to bet on as the world gets back to workTips Recruitment consultant Hays has been volatile, but results are strong and trends encouraging. Matthew Partridge explains the best way to play the share price.
-
What is next for interdealer broker TP Icap?Analysis TP Icap has struggled in a declining market, but there’s still a role for its services. Bruce Packard explains what that is.
