There are few parts of the market that are more out of favor than former SPACs.
A lot of companies that went public in this manner are unprofitable -- either years away from making a profit or unlikely to ever make one. Some are even pre-revenue businesses. As economic conditions tightened in 2022, many of these "story stocks" saw their prices crater as most investors shifted into risk-off mode.
However, for enterprising, risk-tolerant investors, there are bargains to be had even within this class of stocks. Not all of them are unprofitable story stocks or companies selling vaporware.
Here's one former SPAC that not only generates profit but sports a reasonable valuation and pays a dividend that currently yields over 8% -- Ardagh Metal Packaging (AMBP 2.37%).
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What is Ardagh Metal Packaging?
Ardagh Metal Packaging went public in 2021 through a business combination with a SPAC called Gores Holdings V. The Luxembourg-based company makes metal beverage cans and sells them in the U.S., Brazil, and Europe, serving a variety of end users in the beverage market, such as makers of soft drinks, alcoholic beverages, juices, and energy drinks.
The company holds either the top-two or top-three spot by market share in its three geographic segments. It's a subsidiary of Ardagh Group, one of the world's largest manufacturers of glass and metal packaging, which still owns a majority stake in the company.
Palatable valuation
Unlike many of the former SPACs that have seen their share prices plummet this year, Ardagh Metal Packaging is profitable. The company trades at a very reasonable price of 12 times earnings. This is a discount to the average price-to-earnings multiple for the S&P 500 of about 16.
Ardagh also trades at a discount to other producers of metal cans and packaging, such as Ball (BALL 0.64%), which trades at 18 times earnings, and in line with Crown Holdings (CCK 0.64%), which isn't profitable this year but trades at 12 times forward earnings. Legendary investor Carl Icahn recently took a large stake in Crown Holdings, so it appears that he sees value in this space.
Colossal dividend
Ardagh is a rarity among former SPACs -- not only is it profitable, but it pays a dividend. And not just any dividend: Shares currently yield more than 8%, which is massive when compared to the broader market. The S&P 500 has an average yield of about 1.7%, while the 10-year Treasury note offers 3.6%.
This lofty yield also makes Ardagh stand out from peers like Ball and Crown Holdings -- Ball currently yields 1.5%, while Crown yields 1%.
Ardagh is also returning capital to investors via share repurchases. Its board recently authorized a new share repurchase program, which will allow Ardagh to buy back up to $200 million worth of its own shares, which equates to about 6% of the company's current market cap.
This benefits investors because it reduces shares outstanding, increases earnings per share, and can increase dividend payments as there are less shares to divide future payments between. A buyback like this can also be a signal to the market that management views its stock as undervalued.
Looking ahead
The combination of share repurchases and massive dividend yield, alongside a reasonable valuation, makes Ardagh Metal Packaging an appealing stock that offers investors multiple ways to win.