So far this year, Romeo Power (NYSE:RMO) stock has sold off. Now trading as RMO stock, this company went public though RMG Acquisition — a special purpose acquisition company (SPAC) — and closed on its merger on Dec. 30.
Trading for around $26.42 per share when the deal closed, shares have since pulled back to just below $19 per share. However, there may be a silver lining. Why? This recent weakness may have opened up a great opportunity for investors to enter a long-term position in the stock at a more reasonable price.
Yes, valuation may look rich here. Right now, the company sports a market capitalization of around $2.4 billion. Sales for this year are projected to come in at just $140 million.
But things are only getting warmed up. This early-stage company could scale into a multi-billion business within the next four years. If that happens, today’s valuation will look like a steal in hindsight.
Of course, the future is far from guaranteed. But, diving into the details, it’s clear this EV battery play stands to become a winner as this industry takes off in the coming decade.
RMO Stock: Charged for Growth Through 2025
Investors today have many options when it comes to adding EV exposure to their portfolio. Overall trends are this industry’s friend. However, not every company in this space is going to survive, much less thrive.
That’s the case whether we are talking about EV manufacturers themselves or companies like Romeo, which make essential components for EVs. So, why do I believe RMO stock stands to be one of the winners? There are three key reasons.
Firstly, the prospects for this maker of lithium ion battery modules and packs look strong right out of the gate. It’s already locked down $545 million in contracted revenues.
Secondly — unlike other battery names competing for a share of the passenger market — Romeo’s focus is on the commercial market. Already counting customers, the company’s early moves could make it the dominant battery supplier for trucks, vans and other heavy-duty vehicles.
Thirdly, with $384 million raised from the SPAC merger, Romeo Power has the war chest it needs to fund growth between now and 2025. Put it all together and it’s easy to see this company living up to the financials projected in its November investor presentation.
That means the potential for revenues to skyrocket from $140 million in 2021 to $1.65 billion in 2025. And, this is before taking into account its 40% stake in a joint venture with a major auto parts supplier.
Yet, despite so much working in its favor, shares are not immune to volatility. Long-term, this remains a solid opportunity. But keep in mind that shares could experience a hiccup or two along the way.
Patience Is Key with Romeo Power
So far, the runaway bull market in electric vehicle names and related stocks has shown little sign of slowing down. But, at some point, we’re bound to see this sector stumble. Chances are, it’ll happen once some of the newly public EV companies fall short of expectations.
This will impact share prices across-the-board, including the stock prices of stronger contenders like RMO stock. Again, that’s only a near-term hiccup. Yet, it could scare off some investors who lose confidence well before the “story” behind this stock fully plays out.
So, if I believe a pullback in EV and EV-related stocks is possible, why do I think now’s the time to buy Romeo Power? Like the adage goes, time in the market beats timing the market. You are better off being patient rather than diving in and out of this stock in an attempt to predict future market moves.
Also, if Romeo pulls back further from here — say, from $19 per share — to prices as low as its $10 per share SPAC offering price, consider it the prime time to increase your position.
The pivot towards electric vehicles is a megatrend that’s decades in the making. So, don’t consider plays in this space to be short-term trades. These are long-term buys and playing them as such paves the way to big gains down the road.
After the closing of its SPAC merger, those who rode RMG Acquisition stock from $10 per share up to well above $20 per share have started to take profit. But, while this has resulted in some fast gains for many speculators, there’s still opportunity for those looking to play the long-game with Romeo Power.
Already off to a great start, this company could be a multi-billion dollar business within four years. And — while weakness could continue — this may work in your favor. Buying in while others are cashing out, seize the opportunity and enter a long-term position in RMO stock.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
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