With investors excited about its pending merger with Stem, Star Peak Energy Transition Corp (NYSE:STPK) stock went parabolic starting in December. Beforehand, this SPAC (special purpose acquisition company) traded near its $10 per share offering price.
After the deal announcement it went on a five-fold move higher, before reversing in recent days. Some may see this pullback as just the start of further declines. In the near term, that may be the case. Yet despite a rich valuation, and the pullback in “green wave” stocks, this remains a strong long-term opportunity.
How so? Renewable energy storage plays like Stem may be the “green wave” stocks that stand to gain the most in the coming decade. The jury’s still out whether President Joe Biden’s $2 trillion clean energy plan will come to fruition. But as the business world, and governments around the world, pivot away from fossil fuels, skyrocketing demand for this technology isn’t going away.
Sure, Stem isn’t the only company in this industry. But with its large first-mover advantage, as its game-changing technology, it stands to gain a massive share of this market as it grows.
Don’t buy this today with the expectation it will quickly rebound. Shares could pull back further in the coming weeks. Yet, for exposure to long-term clean energy trends, consider STPK stock a strong buy on any future dips.
Buying Stem is a Big Deal for STPK Stock
There are many clean energy SPAC deals out there. Why did investors get excited about this one? As InvestorPlace’s Robert Lakin discussed back in January, it may have had to do with Citron Research’s very bullish call on the stock. Citron’s best known for the stocks it’s gone short. But Andrew Left’s research operation can be quite vocal about stocks it’s bullish on as well.
So, what’s Citron’s bull case on STPK stock? Assigning it a $100 per share price target, it sees renewable energy storage as a trillion-dollar opportunity. You can’t have large-scale solar and wind energy without adequate storage infrastructure. Solar and wind power generation operations can’t run around the clock. That’s one area coal and natural-gas powered plants have solar and wind beat.
Yes, like I mentioned above, Stem isn’t the only company going after this market. But, as Citron noted in its full investor write-up, based on 2019 commercial installations in California, Stem’s already leaps and bounds ahead of the competition.
Already ahead of the pack, this company could capture a disproportionate share of the market, especially as alternative energy ramps up in the coming years. Today’s valuation is built on ambitious growth projections. But the company’s game-changing software could be key for it living up to expectations.
Technological Edge Supports Valuation
Stem may have a bright future ahead of it. But investors are well aware of its strong prospects. Based on this SPAC’s offering price, the combined StarPeak/Stem is valued at $1.35 billion. The implied value is close to $5 billion.
Projections for future growth help to justify this valuation. Based on estimates from Imperial Capital’s Jason Wangler, sales are set to soar from $147 million in 2021 to $1 billion by 2026.
Ambitious projections are part-and-parcel to all of the “green wave” SPAC deals going on right now. What gives us confidence that this company will live up to these sky-high expectations?
How about its technological edge? Stem isn’t really a play on battery hardware (which it sources from third parties). It’s more a play on renewable energy battery software. The company’s Athena software allows for end-users make the usage of renewable energy as seamless as it is for the use of electricity generated from fossil fuels. In other words, it gets over one of the major hurdles setting solar and wind back.
Putting it simply, Stem’s technology gives it a shot at being one of the winners in this emerging sector. And, as it meets (or beats) expectations, there’s plenty of room for STPK stock to head higher in the coming years. This makes buying any dip or pullback an appealing proposition.
Could Dip Further, But a Buy on Any Weakness
With investors bailing out of Tesla (NASDAQ:TSLA), Plug Power (NASDAQ:PLUG), and other popular “green wave” plays, clean energy SPACs like this one may have more room to fall in the near term. But with stocks like this one a bold bet on long-term trends, don’t sweat over short-term volatility.
As the Biden administration moves to fasten the move towards renewable energy, further news will help bolster this sector. And, with Stem’s the first mover and technological advantage, that could mean big gains for this stock in the years ahead.
Consider STPK a buy on any weakness ahead of its pending merger with Stem.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.