The SPAC bubble era is coming to an end: Meet the next unicorns that are really worth their value

SPACs boomed during 2021 but with warnings about the Wall Street craze coming to an end, here are some interesting investments to consider. 

On Wall Street, 2021 became known as the year of the SPAC and it seemed that everyone was getting involved, from former politicians to sports stars, rappers to celebrities. Special Purpose Acquisition Companies, or SPACs, are nothing new in the world of investing. They first emerged in the 1980s, but have been in the spotlight since 2020, creating a bubble that has grown so big many experts believe it’s about to burst.

SPACs, are publicly traded shells designed with the goal of merging with real profitable businesses and have raised tens of billions of dollars over the past year or so. They have come under fire as many young, volatile businesses are skipping stringent IPO norms, going public and receiving SPAC support without necessarily warranting it.

Furthermore, the SPACs of today are often structured so that those sponsoring them can profit even if regular shareholders suffer. Overly optimistic valuations and forecasting made by companies going public via SPACs—without the usual checks and balances—can grow future profits for some, but not others.

Combine the SPAC hype with the high price-to-earnings ratio (P/E ratio) of the NASDAQ and experienced investors are warning of red flags. A P/E ratio over 30 suggests the market is overvalued, as Wall Street fails to support extreme valuation for long periods of time.

With an average NASDAQ P/E ratio over 30 in the past year, there are fears that it is an indicator of trouble ahead. History shows that a high P/E ratio is a strong signal of stock market crashes.

In a confusing market where overconfidence leads to instability, there are few IPOs and SPACs that are truly worth investing in. That said, here are three upcoming options with promising results.

HUB security

HUB Security is a promising yet undervalued potential asset for investors, providing cybersecurity solutions for both on-premise and cloud. The business has the goal to bring a paradigm shift to secured computing, preventing cybercrime through both technology and professional services provided by more than 500 employees across more than 30 countries. It offers the first ever solution for hardware-level cybersecurity protection, creating a nearly un-hackable system that reduces cyber costs and protects both cloud and on-premise.

In January 2022, HUB Security agreed to a Nasdaq SPAC merger with $150 million in trust to raise PIPE funds for the Israeli cybersecurity company. Shareholder holdings are expected to be between 75%-90% after the merger, and the deal can be cancelled if the PIPE money raised is less than $100 million.

Confidential computing as an industry is well positioned, with a projected Total Addressable Market (TAM) to reach $54 billion by 2026. The vast majority of demand stems from regulated industries such as banking, finance, insurance, healthcare, etc., with interest expected to double across these industries through 2026.

Posing as the solution to the $6 trillion in annual damages caused by cyberattacks today, HUB Security is a highly needed asset for clients across the globe, and is well positioned to become a successful business in the confidential computing industry. While the business is undervalued today, it is highly likely that HUB Security will grow in value thanks to its position in the industry, the highly needed solution it provides, and the backing it will receive from PIPE money raised. 

Grid dynamics

Grid Dynamics Holdings, Inc., provides digital transformation services for Fortune 1000 companies across the US and parts of Europe. Areas include strategy consulting, early prototyping, and enterprise-scale delivery of new digital platforms. Services rendered include a wide range, such as consulting, software design, development, testing and internet service operations for customers across retail, technology and media, consumer packaged goods, financial services sectors, and more. Using the latest technologies and data analytics, Grid Dynamics can help accelerate digital transformation for a variety of businesses.

The value of shares in Grid Dynamics Holdings grew significantly in 2021, soaring at the end of the year by as much as 37.7% in a single day. Its financial results for third quarter 2021 revealed $57.9 million in revenue for the period, up 120% year over year. All values for stock value and revenue were better than projections, suggesting that Grid Dynamics was an undervalued asset in many stock portfolios.

With no debt, ample cash on hand, and strong backing from investors, Grid Dynamics is a small-cap tech company with a strong business model and high potential for success. Since its stellar growth began in the second half of 2021, many investors have been left wondering when would be a good time to buy, or if it's too late.

Luckily, a new opportunity seems to have arrived, as share prices finally began to drop by 38% at the beginning of the year. While this change might make some investors nervous, especially in a good market, others can finally take advantage of a solid company with growing revenue and high potential in their industry.

SentinelOne

SentinelOne, Inc. is another company that protects against cyber threats utilizing artificial intelligence to detect, prevent, and respond. Incorporated in 2013, SentinelOne, Inc. was recently rebranded from Sentinel Labs, Inc. Utilizing cross-platform data analytics, its product is able to block and remediate cyberattacks autonomously. Workloads, regardless of location and connectivity, can respond intelligently against cyberattacks using the company’s behavioral AI.

SentinelOne’s use of AI in its product suggests the company might not need as many people to operate, creating greater potential for higher profit margins. Currently, SentinelOne’s growth is impressive, increasing 131% year-over-year to $237 million in the third quarter of fiscal 2022, it is bringing in new customers and those customers are spending more money once on board.

Accordingly, the company’s growth has led to expensive stock values, reaching a price-to sales (P/S) ratio as high as 100 before November’s sell-off. While this high valuation seems worrisome for many investors, a recent drop in value means that now might be the perfect time to buy this stock.

Many investors are also apprehensive about SentinelOne because of their high rate of cash burn. But the rate of company growth at 82%, lack of debt, revenue potential and ability to easily raise more cash all suggest this worry is unwarranted. As stock value continues to drop and investors keep wringing their hands about the potential risks, smart investors have an opportunity to buy into a secure, high potential company at a reasonable price. Their use of advanced AI technology, position in a growing market and potential for revenue growth all suggest they’re on a good path, revenue burn and dropping stock prices aside.

An investment opportunity

While SPACs are largely considered a volatile bubble, there are still opportunities out there to buy into promising businesses backed by private and institutional funding. It’s a case of diving into the figures, looking at overall trends and options that could be undervalued and finding the right time to invest. HUB Security, SentinelOne, and Grid Dynamics all serve as promising examples of companies with high growth potential in their sectors. All investors need to find is the opportunity to buy in when the price is right.