Disappointed in its choice to buy 23andMe, investors have dumped VG Acquisition (NYSE:VGAC) shares en masse. After hitting a high above $18, in the weeks following its announcement of the merger candidate, shares of VGAC stock have pulled back about 41%.
Now at $10.74 per share, this special purpose acquisition company (SPAC) is getting back close to its initial offering price of $10. But, while investors aren’t excited about this deal, I’m taking the opposite view.
Why? As I’ve said before, 23andMe is already a solid business. And, with its expansion into consumer health, it has ample room for growth.
It’s hard to see this from the financial statements alone. That’s part of why so many investors seem uninterested in this opportunity. But use that to your advantage. With the market’s incorrect sentiments about VGAC stock holding it down, you can enter a position today at an unbeatable price.
Yes, shares could continue to slide in the near-term. But as sentiment shifts and investors appreciate its potential to disrupt the healthcare space, expect shares to bounce back in a big way.
VGAC Stock: This Merger Is More Than Meets the Eye
Why are investors not liking the proposed deal? Well, there are two reasons.
First, they didn’t like that this blank-check company went with this particular merger target. The expected candidate was another company affiliated with the SPAC’s sponsor.
Second, the deal’s valuation is troubling. At first glance, it looks as if VG Acquisition is paying top dollar for a declining business. Even at today’s prices, the deal’s pro-forma equity value is about $4.5 billion. Subtract the cash proceeds and the combined company has an implied enterprise value of around $3.5 billion (Page 37).
Compared to 2021 estimated revenue of $218 million, that’s about a 16 times sales multiple (Page 34). Other SPACs may command similar valuations — for example, electric vehicle SPACs. But, with the company shifting focus in the past few years, recent results leave the impression that this isn’t a growth story anymore.
However, this is a short-sided view. Yes, 23andMe’s direct-to-consumer ancestry data business has matured. But that’s not the play going forward with VGAC stock, which is soon to be ME stock.
What is the play? The company’s future as a provider of what it calls “personalized healthcare at scale.”
As a Healthcare Play, This Is an Exciting Opportunity
To appreciate the potential here, you have to look beyond this company’s past and present business.
Building itself into a major provider of genetic testing for ancestry data was just the first step. With over 10 million genotypes, the company already has a treasure trove of user data. In other words, an asset that’s hard to quantify on a balance sheet.
This “asset” may not jump out at you when you are looking at the financials. But it could help drive massive growth in the coming years — be it from upselling health-related genetic information to these existing customers or from using it as a low-cost customer-acquisition vehicle.
And the potential revenue growth isn’t just limited to the direct-to-consumer space. 23andMe has also figured out how to leverage this data into other opportunities in healthcare, like the strategic collaboration it forged with a major pharmaceutical company back in 2018.
In short, the company has many ways to drive growth in the coming years. Its 2024 projection of $400 million in revenue looks more than attainable. Yet, don’t think that’s where growth will hit a wall. Targeting healthcare, it’s going after a much larger total addressable market. This means plenty of runway for 23andMe and VGAC stock — beyond the projections three years out.
Bottom Line: Buy on Today’s Weakness
23andMe built up a solid business with its initial focus on ancestry data. But, its expansion into health is what’s going to move the needle. From its existing operations, the company has big potential to expand its customer base. And its growing data library means even more revenue opportunities, including more pharma partnerships.
Right now, instead of appreciating this long-term potential, investors are splitting hairs over the near-term. In a way, that’s odd. Investors seem more-than-willing to bid up other SPACs based on projections alone.
So, most folks are getting the “story” here wrong. But that’s why this is such a great opportunity. Misunderstanding has pushed VGAC stock down to a fantastic entry point. Yes, shares could continue to pullback — perhaps even below the $10 per share offering price. On the other hand, though, it’s possible that more people could start seeing the potential here. That could drive the stock back toward prior highs.
Bottom line? Don’t miss the chance to get into this name ahead of the 23andMe merger. Seize the opportunity below $11 and buy VGAC on today’s weakness.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
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