Lightning eMotors (NYSE:ZEV) has many excellent traits and a multitude of powerful, positive catalysts. In fact, the company has most of the characteristics that I look for in an up-and-coming company. As a result, I’m very bullish on ZEV stock at this point.
Among Lightning’s strengths are its very promising niche, its huge customers, its large backlog and encouraging revenue growth, its ability to benefit from bills likely to be passed by Congress, and its very deep-pocketed leading investor.
What’s more, the valuation of ZEV stock is quite reasonable.
A High-Potential Niche and Very Impressive Customers
Smartly shunning the very crowded and intensely competitive consumer EV market, Lightning eMotors focuses on the fleet and charging sectors. Among the EVs that Lightning eMotors makes for companies are delivery trucks, shuttle buses, passenger vans and classic cargo trucks.
By focusing on developing electric powertrains and integrating them with existing gasoline-powered vehicles, Lightning further differentiates itself from the vast majority of its competitors. Finally, as I indicated earlier, the industrial firm also sells chargers for EVs, and it provides maintenance and support for the chargers that it sells.
As I’ve noted in previous columns, many firms are looking to buy EVs in order to show their customers that they care about combating climate change. Lightning eMotors seems to be exploiting this trend primarily by converting the conventional vehicles of other companies into EVs. The latter firms then use these EVs to show their customers that they are helping to combat climate change.
Having electric powertrains integrated into existing, conventional vehicles is a much cheaper and easier way for companies to show off their “green” credentials than buying new EVs. It’s cheaper because new commercial EVs tend to be very expensive. It’s easier because, with Lightning, companies can continue to utilize their existing vehicles, without having to train their staff on the use of new ones and deal with unexpected headaches that may arise from relatively untested, newly designed EVs.
As a result, I believe that this niche could potentially be extremely lucrative for Lightning eMotors. If that indeed proves to be the case, ZEV stock will climb much higher over the long term.
High Revenue Growth and a Big Backlog
In the second quarter, the company’s revenue came in at $5.9 million, up from just $900,000 during the same period a year earlier. Lightning sold 36 EVs, versus only nine during the same period a year earlier.
More importantly, its backlog, as of June 30, stood at 1,600 units valued at $168.4 million. That’s up more than 500% from a year ago. And very impressively, Lightning’s sales pipeline was $1.29 billion as of June 30.
Backlog likely consists of orders that the company has already received, while sales pipeline probably refers to additional orders that its customers have indicated that they may make in the future, as well as to potential deals that are being negotiated.
Help From DC and Lightning’s Giant Investor
The huge budget deal that Democrats are negotiating is likely to greatly increase the incentives for companies to utilize EVs. Meanwhile, the bipartisan infrastructure bill would appropriate $7.5 billion for EV chargers, along with $5 billion for zero-emission and low-emission buses. (Lightning also makes buses.) In all likelihood, a small portion of these funds would wind up in Lightning’s accounts, assuming the bills pass. And I believe that they will pass, although the budget will be slashed significantly from its current $3.5 trillion.
Still, at least some of the additional incentives for EVs are likely to remain in the budget bill.
A huge oil company, BP (NYSE:BP), is a major investor in Lightning eMotors. As of August, BP held 40% of all the shares of ZEV stock. Consequently, BP will probably make sure that Lightning has all the funds and connections that it needs to become very successful.
Valuation and the Bottom Line on ZEV Stock
Given Lightning’s large backlog and huge customers, along with its gigantic opportunities, the $565 million market capitalization of ZEV stock is quite reasonable and can greatly increase.
In light of these points, as well as the help that Lightning is getting from BP and is likely to receive from DC, I recommend that growth investors buy the shares at their current levels.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.