Stem Inc

Stem Inc (NYSE: STEM) is an artificial intelligence (AI) entity that provides smart battery storage solutions and serves Fortune 500 corporate energy users, power producers, and project developers.

Investment Rationale – SPECULATIVE BUY at USD 19.69

• Growth Prospects: During Q3 FY21, STEM demonstrated record revenue growth, decent gross margin, robust backlog, and pipeline, reflecting excellent commercial and operational momentum to sustain the growth.
• Guidance: FY21 revenue was reaffirmed at US$147 million, and it expects to recognize 50% to 60% of total FY21 revenue in Q4 FY21.
• Fundraising: The proceeds of recently issued notes will be used to fund the existing or new Eligible Green Expenditures of Stem to build a clean energy system and reduce waste through operations.
• Improved Dynamics: As the Omicron variant has only shown mild symptoms so far, it is not likely to dent the economy significantly, and subsequently, global equities got a boost.
• Technical Indicator: From a technical standpoint, the momentum oscillator 14-day RSI (~40.95) is still hovering close to the oversold zone, while the stock price is close to the lower Bollinger Band.
• Outperformance Against Index: STEM’s stock price has surged over 32% in the past year, reflecting outperformance against the benchmark NYSE index.

Risk Assessments

• Operational Losses: STEM reported an adjusted EBITDA loss of US$7.2 million. It can also face manufacturing delays amid supply chain challenges.
• Macroeconomic Uncertainties: The prolonged inflationary pressure, supply chain snags, subdued factory activity, slowdown in the US Job growth, and the likelihood of the early asset tapering.

Recent News

Pricing of Senior Notes: On 17 November 2021, Stem announced the pricing of US$400 million aggregate principal amount of 0.50% Green Convertible Senior Notes due 2028.

Q3 FY21 Financial Highlights (for the third quarter ended 30 September 2021, as on 9 November 2021)

 (Source: Company Website)

• Top-line Growth: During Q3 FY21, revenue jumped around 334% year-on-year on Q3 FY20, while the Company reported a gross margin of 8% against -19% in Q3 FY20.
• Profitability: The Company reported a net income of US$115.6 million versus a net loss of US$18.8 million in Q3 FY20, mainly due to a non-cash revaluation of Public Warrants.
• Liquidity: STEM ended Q3 FY21 with US$576 million in cash, cash equivalents and short-term investments, and maintained zero debt on the balance sheet.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: EV/Sales Approach (FY21) (Illustrative)

Conclusion

STEM delivered a record 12-month pipeline of US$2.4 billion at the end of Q3 FY21, as there was a 183% year-on-year growth in the bookings. The customers are increasingly demanding smart energy solutions enabled by Athena®, which holds significant growth potential for the Company. STEM has a rapidly expanding market, differentiated offerings, and a strong balance sheet to sustain the growth momentum. The stock price made a 52-week High and Low of USD 51.49 and USD 14.25, respectively.

Based on the revenue growth, diversified portfolio, undervalued valuation multiples, favourable technical indicators, supported by the valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Stem Inc at the closing market price of around USD 19.69 (as on 8 December 2021), with lower double-digit upside potential based on 21.93x EV/NTM Sales (approx.) on FY21E sales (approx.).

BlackSky Technology Inc

BlackSky Technology Inc (NYSE: BKSY) is engaged in providing real-time geospatial intelligence.

Investment Highlights – Watch at USD 8.77

• Reduced Guidance: The Company had reduced the FY21 revenue forecast from USD 40 millionto a range of USD 30 million to USD 34 million because of the Covid-19 related supply chain disruptions.
• High Operating Loss: Net Loss from continuing operations increased from a negative USD 13.9 million during Q3 FY20 to a negative USD 46.9 million for Q3 FY21.
• Q3 FY21 Results: On 12 November 2021, the Company announced revenue growth of around 49% during Q3 FY21 when compared with Q3 FY20. Moreover, the Company had reported a cash balance of USD 198 million as of 30 September 2021. The net loss stood at a negative USD 46.9 million for the period.
• Unfavourable Technical Indicators: From a technical standpoint, the 20-days exponential moving average of USD 8.79 indicates a bearish price momentum.

One Day Share Price Chart  

(Source: Refinitiv; Analysis done by Kalkine Group)

Considering the reduced revenue guidance and widening of net loss during Q3 FY21, we have given a "WATCH" stance on BlackSky Technology Inc at the closing market price of USD 8.77 (as on 08 December 2021). However, for any profit booking scenario, buy and holding levels should be looked at as per the risk appetite of investors.

Flux Power Holdings Inc

Flux Power Holdings Inc (Nasdaq: FLUX) is engaged in the sale of rechargeable advanced lithium-ion batteries for industrial uses.

Investment Highlights – Watch at USD 5.23

• Weak Bottom-Line Business: FLUX had reported a wider net loss of negative USD 0.30 per share than the consensus estimates of a negative USD 0.28 per share during Q1 FY22.
• Increased R&D Expenses: The new product development activities had resulted in an increase in R&D expense from USD 1.50 million for Q1 FY21 to USD 2.0 million during Q1 FY22.
• Supply Chain Disruptions: The delivery delays at the ports of Los Angeles and Long Beach would continue to cause supply chain disruptions.
• High Shipping Cost: The inflated price of steel & electrical components and the high shipping cost may adversely impact the bottom-line business.
• Technical: From a technical standpoint, the MACD line remained lower than the signal line, indicating a bearish price momentum. Moreover, 20-days EMA (USD 5.33) indicates a correction in the stock price.

One Year Share Price Chart

 (Source: Refinitiv; Analysis done by Kalkine Group)

Considering the weak bottom-line business during Q1 FY22 and unfavourable technical indicators, we have given a "Watch" stance on Flux Power Holdings Inc at the closing market price of USD 5.23 (as on 08 December 2021). However, for any profit booking scenario, buy and holding levels should be looked at as per the risk appetite of investors.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.