Should You Exit From This NYSE–Listed Energy Storage Provider – STEM

Feb 25, 2022 12:00 AM PST | Team Kalkine
Should You Exit From This NYSE–Listed Energy Storage Provider – STEM


Stem, Inc.

Stem, Inc. (NYSE: STEM) is an energy storage system provider. To provide customers with a comprehensive solution, the company bundles third-party hardware with its own Athena software. STEM sells its products to industrial, independent power providers and renewable energy developers.

Why should Investors make an Exit?

  • Increase in Accumulated Deficit: The company's accumulated deficit had risen to USD 509.05 million as of December 31, 2021, up from USD 407.84 million as of December 31, 2020. An increase in the accumulated deficit implies that a business is not financially solid and may need to invest more money soon.
  • Expansion in Operational Losses: The company has reported a significant increase in operational losses to USD 83.07 million in FY21 (ended December 31, 2021) from USD 49.39 million in FY20, due to growth in operating expenses.
  • Margins Stress: In FY21, the company reported a gross margin (GAAP) of just 1%, indicating a significantly high cost of revenues. Even a slight rise in revenue costs is enough to cause the company to lose money.
  • Bearish Technical Indicators: The company's closing market price was USD 11.24, which was hovering far below its 50 Day moving average. Furthermore, the 14-day RSI (~43.40) indicates that the stock is in the bearish trend and could fall even more from the current prices.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

STEM's share price has fallen 55.61% in the past six months and is currently leaning towards the lower end of its 52-week range of USD 9.11 to USD 37.79. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 9.00.

As the company is operating at a substantially low margin, increase in operational losses, current valuation, and bearish technical indicators, we recommend a "Sell" rating on the stock at the closing price of USD 11.24, as of February 24, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing.

Three-Year Technical Price Chart (as of February 24, 2022). Source: REFINITIV; Analysis by Kalkine Group 

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

* All forecasted figures and industry information have been taken from REFINITIV.