In recent weeks, Wall Street has pulled the plug on shares of Romeo Power (NYSE:RMO). But for today’s investors, going long RMO stock may be a promising way to power up tomorrow’s portfolio. Let’s look at what’s happening off and on the price chart, then offer a risk-adjusted determination aligned with those findings.
Lordstown Motors (NASDAQ:RIDE). QuantumScape (NYSE:QS). Fisker (NYSE:FSR). Blink Charging (NASDAQ:BLNK). Switchback Energy (NYSE:SBE). Those are but a few of last year’s wave of electric vehicle or EV stocks chasing Tesla’s (NASDAQ:TSLA) halo effect in the alternative energy transportation market. And with gains in excess of 700% and valuation of more than $650 billion by year’s end in TSLA stock, the enthusiasm wasn’t without cause, right?
If amid the EV circus you missed RMO’s debut as a publicly listed company, you’re not alone. More importantly, today’s investors may also be in a much stronger position to be rewarded for buying into Romeo Power.
So, who is RMO? Romeo Power is an LA-based EV battery manufacturer for trucks. They’re helping decarbonize the commercial vehicle market. And unlike some of today’s more emboldened ventures within this emerging space, RMO has a business with sales backed by 16 blue-chip customers such as BorgWarner (NYSE:BWA). Bottom line — unlike peer Nikola (NASDAQ:NKLA), Romeo Power isn’t just offering promises of what might be down the road.
Still, why should investors consider exposure to RMO today? Wouldn’t it be prudent to avoid an EV market sporting bubble-like qualities near-term, before buying into the possibility of more tangible, fully charged financials in the years ahead? Maybe not.
InvestorPlace’s Mark Hake makes the case for buying Romeo Power shares using his CFA toolkit to reveal decent value under the hood right now.
In summary, some conservative back-of-the-envelope math incorporating Romeo’s sales forecasts, cash position and peer price multiple comparisons suggest RMO should fetch roughly $31 to $42 a share over the next two years. His green light of sorts for RMO stock was from late last week. Now and following Monday’s approximately ding of 5%, backing up the truck on Romeo’s well-above-the-market ROI looks even more attractive off and on the price chart.
RMO Stock Weekly Price Chart
Source: Charts by TradingView
Unlike many of its EV peers, except for NKLA stock, RMO has put together a much larger corrective move the past few weeks. For investors who bought Romeo as it completed its reverse merger at the end of December, it has been a painful experience. Shares have slid nearly 54% from an all-time high established just a couple days in front of the NYSE’ welcome mat. But there is good news within RMO’s wicked price action.
The fact is all stocks go through corrections. Even in healthy markets, declines approaching 30% are common in even the best companies. Apple’s (NASDAQ:AAPL) 25% corrective base formed the past few months is one high-profile testament to that fact. But for smaller growth stocks of RMO’s caliber (especially after the run-up into the direct listing), the larger-than-normal decline isn’t unusual. Technically though and what makes Romeo’s market haircut more appealing as a buying opportunity, is a double-bottom pattern forming in conjunction with an oversold weekly stochastics setup.
For the time being, without a weekly candlestick reversal confirmation and still waiting for a bullish stochastics crossover signal, I’d simply recommend watching RMO. But realize a more fully-formed buy decision could happen as soon as next week.
Should RMO stock manage to find its technical footing, I’d favor taking some of what Hake talks about to heart and buy a March or May-dated bull call spread.
On the date of publication, Chris Tyler does not hold, directly or indirectly, any positions in securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.