Stem (NYSE:STEM) is one of the most well-known, pure-play, electric grid investments. Stem recently became publicly traded by merging with a special purpose acquisition company (SPAC), The Star Peak Energy Transition. The SPAC traded under the ticker, “STPK” and officially merged with Stem at the end of April, creating STEM stock.
STEM stock initially enjoyed great success, reaching $50 at one point. As SPACs and speculative stocks have lost steam this spring, however, Stem has followed suit. Now down 50% off their highs, are the shares worth buying at this point?
A Credible and Intriguing Pitch for STEM Stock
A big feature of Stem is its leadership. In particular, CEO John Carrington is a respected figure. He was the head of marketing for General Electric’s (NYSE:GE) plastics business for many years and was also a top executive at First Solar (NASDAQ:FSLR) as the latter company’s business grew exponentially.
A lot of SPACs have great ideas and cool presentations. Fewer, however, have CEOs who have already headed successful, large businesses. First Solar is a particularly good line on Carrington’s resume, as it is one of the most successful green energy companies. Right now, with SPACs in a major downturn, credibility matters. Carrington definitely has a great deal of credibility.
Based on artificial intelligence, Stem’s Athena system seeks to enable businesses to reduce their electricity usage by 10%-30%.
That is a much more achievable aim than, say, creating a new type of battery technology altogether, as QuantumScape (NYSE:QS) is attempting.to do. Short sellers have feasted on QS stock because some of that firm’s goals seem so aggressive.
By contrast, Stem isn’t pursuing the holy grail of energy. Rather, it asserts that its system enables firms to meaningfully cut their electricity bills. That’s a realistic pitch which doesn’t require heroic technological leaps to pull off.
As good as Stem’s fundamentals are, it faces two huge problems. First, few traders want to buy stocks that merged with SPACs right now. Many prominent SPACs have been hit with allegations of fraud or have other material problems. Additionally, the share prices of many electric vehicle (EV) SPACs have collapsed in recent months.
In February, the market gave every SPAC the benefit of the doubt, but the opposite is true now. Also, Stem only expects to generate around $150 million of revenue this year and $1 billion of sales in 2026.
However, after being burned by SPACs’ faulty projections over and over, traders want to see revenues now, rather than projections of huge growth in the future. Those who are bullish on STEM stock, however, can point out that the company has a significant near-term backlog, consisting of actual orders. As a result, its outlook is somewhat certain.
Meanwhile, the shares of many SPACs have fallen back to $10 per share, the price for which they initially sold shares to the public. As a result, it’s hard for folks to get excited about buying STEM stock for $25. Now, the thinking goes, a SPAC is only a bargain if it can be bought for around $10 per share.
The Verdict on STEM Stock
Like many SPACs, Stem has a lot to prove. The company doesn’t have all that much revenue. Instead, investors need to be upbeat about where its business will be in a few years to be comfortable with the current share price.
But Stem has another major redeeming feature: A big part of Stem’s value proposition is that it uses software to facilitate energy storage. Historically, software tends to be a much better business than hardware. Further, Stem already has many well-known customers, suggesting that its core systems are useful to large companies.
Consequently, Stem is far ahead of, for example, an EV company that only has a prototype or a battery maker that has never sold a battery before.
Thus, if I had to invest in a renewable energy stock today, I’d pick a name like Stem that seems to have a more realistic path to commercial success.
Still, in a tough market for SPACs, Stem isn’t attracting much interest from investors right now. So don’t be surprised if it takes at least a few months for STEM stock to really start working once again.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.