1 high-growth SPAC stock every investor should watch out for

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Investors who have bought shares in Special Purpose Acquisition Companies (SPACs) and their post-merger shares will not have an easy time of it in 2021. Share prices for SPAC-related companies such as AppHarvest, Nikola engines, and Lordstown Motors have fallen sharply this year after disappointing investors with their first earnings reports and / or admitting fraud. This has led many investors to be suspicious of the SPAC investment universe.

However, while the area seems to have more than its share of bad companies, there are a few companies that have gone public through a SPAC that are worth looking into. Enter Lock (NASDAQ: LTCH), a software and hardware company focused on making real estate safer and more enjoyable.

Because of this, investors should put Latch stock on their watchlist.

Image source: Getty Images.

What is latch

Latch offers hardware and software for real estate developments that are specially designed for large apartment buildings. It sells internet connected door locks that go to every door in an apartment building and are connected to the LatchOS mobile app. Residents can enter and exit their homes and enter the building through a single app on their phone, eliminating the need for multiple physical keys, key fobs and door codes. LatchOS is worthwhile for building managers as it speeds up the tenant move-in process, makes the building more secure and has all of their daily needs in one place.

Numbers for the second quarter

In its latest results for the second quarter of this year, Latch increased revenue 227% year over year to $ 9 million. This current sales figure is small, but since apartment building owners take two to five years, and sometimes longer, to convert a building, Latch has a long delay before sales are recorded even as new contracts are signed. To help investors with this delay, Latch issues a booking number each quarter that quantifies the amount of future contracted revenue for the period. Total bookings reached $ 95.8 million in the second quarter, up 102% year over year.

Latch also reached 451,000 cumulative apartments booked in the quarter, up 108% from 2020. According to management, apartment buildings pay $ 7 to $ 12 per month for Latch per door device, depending on how many Latch services they have subscribed to. This makes the accumulated apartments booked a good guide to Latch’s future software revenue. For example, if Latch reaches 1 million managed households and owners pay an average of $ 10 per month per device, that’s $ 120 million in annual recurring revenue for Latch each year. With those 451,000 properties booked at the end of the second quarter, Latch is well on its way to hitting those numbers.

Growth opportunities in Europe and office buildings

Outside of its core market of residential real estate in North America, Latch plans to expand into Europe and commercial real estate. In Europe, Latch is supported by its SPAC sponsor Tishman Speyer, a million square feet owned real estate developer on the continent. Tishman Speyer has a large stake in Latch, so the two companies have good incentives to work together.

The commercial offering is currently only in a pilot program but will be deployed at the Empire State Building and Rockefeller Center in New York City, which hopefully shows Latch’s ambitions for this segment. It is currently unclear whether the commercial product will grow as fast as the residential supply, but the two markets have very similar needs that Latch can serve.

Thoughts on evaluation

With a market capitalization of $ 1.4 billion, Latch is trading at a price to sales ratio (P / S) of 49.6 after 12 months, which is quite expensive and could discourage valuation investors like me from getting stocks right now own. But with the strong booking growth that Latch continues to see, its earnings are likely to skyrocket over the next few years, causing that valuation to fall pretty quickly.

If you believe Latch can reach well over 1 million managed households, which the company seems to be on the way forward, a $ 1.4 billion market cap could look cheap in a couple of years. Latch is without a doubt a risky investment, but it is the SPAC that all investors should put on their watchlist.

This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.

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