Star Peak Energy and Stem Will Not Be a Secret For Much Longer

It seems like every week, I’m writing about one or two special purpose acquisition companies (SPACs) that I’ve never heard of. Today, the company is Star Peak Energy (NYSE:STPK). STPK stock didn’t draw much attention until December 2020. The stock spiked to a closing price of near $50 per share at its peak in February.

A concept photo of different energy storage systems.

Source: Shutterstock

STPK stock price has been cut nearly in half since then. But I get a sense that this is just a brief pause. The reason for my optimism is that the company’s addressable market is likely to increase as renewable energy companies look at energy storage as an issue they no longer can afford to ignore.

But first, an introduction.

Like any SPAC, the appeal of Star Peak Energy comes from the company it is bringing public. In this case, Star Peak is bringing public a developer of intelligent energy storage and predictive energy software. The company is called Stem. The vast majority of case studies that Stem lists on its website are located in California.

I imagine that the company may soon be adding Texas companies to its network of over 360 customers, including over 30 Fortune 500 companies. That’s because many utility companies in the Lone Star State may find Stem as an answer to its energy storage problems.

Our Nation’s Electrical Grid is Worn Out

This has been a true statement for decades. Yet it seems that with every new presidential administration we say, this time it has to get fixed. And it never does. But this time it has to be different. The demand is becoming too great. In the first place, there are the digital systems that support the Internet of Things. Then there’s the inevitable energy demand that will be created if we are going to have an electric vehicle future.

This will only create more strain on the grid. And that is a problem that is only getting more urgent as renewable energy sources become more prolific,

Renewable Energy’s Storage Problem

The recent winter storm in Texas shone a spotlight on one of the lingering issues that has to be resolved before renewable energy can truly be mainstream. The thing about traditional fossil fuels is that they are available, relatively speaking, on demand. That’s not necessarily true of renewables.

As Josh Enomoto wrote recently, technology can do many things, but it can’t make the sun shine longer and it can’t make the wind blow stronger. The challenge is to find ways to improve the storage capacity of existing batteries.

That’s what Stem does. But the way it does it is what investors should find very compelling.

Bringing Artificial Intelligence to Renewable Energy

Stem employs Athena, a proprietary industry-leading software platform, that uses artificial intelligence (AI) that “performs critical decision-making in real time, unlocking hidden cashflows for customers.” Using AI, Athena accurately forecasts onsite energy demand as well as energy demand on the grid.

The platform optimizes across multiple applications and makes economic tradeoffs in real time, particularly how much energy to use and how much to keep in storage for future use.

In an interview with Forbes, Larsh Johnson, Stem chief technical officer describes it this way, “When you think about it, the battery doesn’t do anything by itself, so you need the intelligence to understand how best to use that battery.”

In reading one of the case studies for Athena, a satisfied customer said, in effect, he didn’t know exactly how Athena worked. He just knew that it did. And I imagine there will be many more customers expressing a similar sentiment.

STPK Stock Is Too Smart to Fail

SPAC fatigue is real. And it may explain why investors aren’t rushing into STPK stock. Now, I’ll agree that the stock was ahead of itself when it was trading in the $40s. But down near $25, it’s priced like a premium SPAC.

Normally such prices are reserved for SPACs who are being led by a famous name. But in this case, I believe that Stem presents a compelling story that is worthy of a premium price. Remember, unlike some other companies, Stem is not a pre-revenue company. They have an industry-leading product on the market and are providing proof of concept for investors every day.

On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.

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