Some investors might be wary of the renewable energy market because it’s starting to get crowded. Yet, along comes an innovative company like Stem (NYSE:STEM) that offers something different for folks willing to take a chance on STEM stock.
Unfortunately, some people did take a chance on it and now they’re at a loss. After an initial rush of enthusiasm, the share price has started to sag lately.
Does this mean that STEM stockholders should cut and run? Not necessarily, as this is still a high-potential investment in a company that uniquely combines artificial intelligence (AI), software and sustainability.
Furthermore, if you haven’t taken a position in this company yet, now you have a chance to position yourself with a promising up-and-comer that’s addressing a vast, lucrative market.
A Closer Look at STEM Stock
On April 28, Stem completed its business combination with a special purpose acquisition company called Star Peak Energy Transition Corp.
Prior to that day, the stock represented Star Peak, the shell company. Still, there had been a lot of movement in the stock by late April.
If we rewind to December of last year, we can see that STEM stock had already started to climb higher than the typical $10 SPAC stock price.
In anticipation of the reverse merger, the buyers bid the share price higher. By Feb. 17, the stock hit a 52-week high of $51.49.
This was during a time when SPAC stocks were red hot. The overheated sentiment cooled off in March and April, and STEM stock declined sharply.
STEM stock is now down to $18. Does this mean that the company is actually in trouble? More likely, the share price had just gone up too far, too fast, and was due for a retracement.
Say Hello to Athena
Now, I’d like you to meet Stem’s flagship product, known as Athena.
It’s an intelligent software solution, which is the modern way of saying that it’s powered by AI.
Stem’s target market for Athena mainly consists of businesses, including independent power producers and utilities.
As the company describes it, Athena “uses advanced artificial intelligence and machine learning to optimize the operation of these [smart] batteries by automatically switching between battery power, onsite generation and grid power.”
Businesses can even manage and optimize multiple sites with Athena. Plus, they can track the savings and battery performance in real time.
Without getting very specific, Stem offers examples of what the performance improvements might look like for clients that use Athena:
- Retail: +975%
- Bakery: +129%
- Sanitation district: +86%
Additionally, more than 950 projects are operating or contracted with Athena.
So, plenty of businesses depend on Athena, and therefore on Stem, to maximize their power efficiency and cost savings.
A Short Seller Goes Long
Investing in Stem is, in effect, taking a position in the future of AI-driven clean energy storage systems. But how lucrative is this industry?
According to Stem, the company operates within an addressable market that’s “growing 25x to $1.2 trillion by 2050.”
Interestingly, that same fact is mentioned by none other than short seller (or possibly, former short seller) Citron Research in a strongly bullish report on Stem.
Citron isn’t known for freely giving its stamp of approval to stocks. If anything, Citron has gained a reputation for issuing harsh, negative opinions.
Yet, the analytic firm declared that STEM stock “should power its way to over $100.”
In defense of this ambitious price target, Citron cites several impressive figures:
[Stem/Athena] has over 900 systems operating/contracted currently in 200+ cities that represent 1 GWh of storage capacity. The platform has operated globally with over 16 million runtime hours and has a backlog of significant business that will drive growth for years to come.
With that, I’d say that Citron has constructed a fairly rock-solid case in favor of STEM stock as a worthy investment.
The Bottom Line
Don’t get me wrong. I’m not suggesting that anyone should buy a stock just because Citron likes it. As always, you have to dig deeper and maintain a skeptical mindset.
That being said, the bull thesis for STEM stock looks convincing.
Apparently, plenty of businesses are getting to know Athena. It continues to offer energy and cost savings, they’re likely to keep coming back.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.