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That is, as the Biden administration pushes to turbocharge America’s eventual move to 100% renewable power generation, Stem could see its business take off in a big way in the years ahead. Its business, of providing software for the management of batteries that store solar and wind generated power, could see tremendous growth by 2025.
Even if the U.S. president’s plans fail to become policy, the company’s growth prospects remain strong. Valuation may look high. Yet given its high-growth factor, the rich multiple it trades for today may be reasonable. Since February, shares in the company have fallen by around 50%, to $25.32 per share. This makes sense, given that the bubble that emerged in green stock has been deflating over the past six months. (See Stem Inc. stock charts on TipRanks)
At the same time, as this particular green company makes progress, and overarching trends are on its side, I’m personally bullish on this stock. As investors-in-general look at the facts, and start to think bullishly as well, this name may have room to bounce back towards its prior $51.49 per share high.
STEM Stock: One of the Strongest Green Plays?
Besides the factors mentioned above, there are other reasons why Stem could be one of the best green energy plays around.
First, the fact that it’s focusing on a high-margin business. As mentioned above, the company’s main product is software. The software platform, named Athena, uses AI (artificial intelligence) to optimize the use of battery-stored power.
By focusing on software instead of hardware, the company is not only pursuing higher margins (already at 80% for its Athena platform). It also has a better chance of creating an economic moat around its business. By doing so, it could be able to keep competition at bay over the long-term.
Second, even as it’s still in its early stages, and not yet at the point of profitability, STEM stock appears reasonably priced relative to its growth potential. The Biden administration’s green energy plays may still be a work in progress. However, even if America’s move to all-green energy takes time, this company may still be set to grow in-line with, or above, projections.
Long-Term Projections could Justify Valuation
Based on its current results, Stem Inc. appears overvalued. The company generated just $62.6 million in sales over the past twelve months. This may make its current market capitalization of $3.32 billion appear inflated.
Yet, given that analysts project it will generate $147 million in sales this year, and $318.2 million in 2022? Valuation may be reasonable relative to growth. Even better, it’s likely that its growth in the coming year is only the start.
Per projections in the company’s December 2020 investor presentation, it could generate over $944 billion in sales, and $295 million in adjusted EBITDA, by 2025.
Granted, this energy company still needs to deliver. However, its potential success in the years ahead may not be contingent on the Biden administration’s policy plans coming to fruition. Even without government largesse, its platform may still see continued increased demand from industrial and utility end-users.
What Analysts are Saying about STEM Stock
According to TipRanks, STEM stock has a consensus rating of Strong Buy. Out of 3 analyst ratings, 3 rate it a Buy, 0 analysts rate it a Hold, and 0 analysts rate it a Sell.
As for price targets, the average Stem Inc. price target is $39 per share, implying around 54.03% in upside from today’s prices. Analyst price targets range from a low of $34 per share, to a high of $48 per share.
Renewed Investor Attention for STEM
With the many factors on its side mentioned above, Stem Inc. is again attracting attention from investors. Up until February, investors were willing to bid up anything green-related.
Now, as it’s clear the move to carbon-free will still take time, the market is looking to separate the possible big winners from names that at best will end up as also-rans. Fortunately for investors who already own it, or are looking to buy it, this name in particular falls into the former category.
Stem Inc. is pursuing a higher-margin end of the green economy, with growth potential whether or not all of the Biden administration’s proposed plans become real-life policy. The prospects for STEM stock may be some of the best out there among companies in this sector.
As more take notice of this fact, shares may have room to make a trip back toward their past high.
Disclosure: At the time of publication, Thomas Niel did not have a position in any of the securities mentioned in this article.
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