Be greedy when others are fearful.
That wise advice comes from the world’s most storied investor – Warren Buffett – with the broader lesson being that, oftentimes, the crowd is wrong.
Right now, we think the crowd is wrong. More specifically, we think the crowd is being unnecessarily short-sighted.
Investors are furiously selling high-flying technology stocks. The sell-off makes sense. High-flying tech stocks were red-hot. Many of them were very richly valued. They were due for a deep correction.
All that makes sense… but there are murmurs out there that the “tech trade is dead” – and we find such murmurs to be absolutely silly!
Technology is taking over every aspect of our lives.
Don’t believe me? What are you reading this issue on? Your computer or phone? Assuredly, not a piece of paper…
And that’s a good thing, because it means I can communicate with you instantaneously and dynamically, you can forever keep our issues in an archive without taking up physical space at your house, you can rapidly search through those issues looking for critical information by using “control F,” and we can do all of this without killing any trees…
That’s a microcosm of the impact technology is having on the world.
You see, technology is making the world cleaner, faster, healthier, more efficient, and overall, just better.
This has been true for the past several decades. It will remain true for the next several decades, too.
So, yes, we think tech stocks will be weak here in the interim as Wall Street overreacts to rising rates and the physical economy reopening (as you probably already know, Wall Street always overreacts to near-term catalysts, both good and bad)…
But this interim weakness will eventually and inevitably roll into a golden buying opportunity, because in the background, technology continues to fundamentally change the way we eat, workout, travel, work, play, and communicate…
That’s why we are heeding the words of Warren Buffett today, and getting greedy while others are fearful.
Today, we will tell you about one small-cap stock that has caught our attention in recent weeks. It’s a very strong commercial electric vehicle maker that has been walloped in the recent tech sector meltdown, but which has what it takes to recover from this sell-off and turn into one of the most important transportation technology companies of the future…
A Standout in the Crowded, Hypergrowth Commercial EV Space
Today’s company is Proterra, a $3.8 billion commercial EV maker that has announced its intention to go public through a SPAC merger with ArcLight Clean Transition Corp. (ACTC).
Proterra designs electric drivetrains and battery systems for heavy-duty commercial vehicles, with an immediate focus on transit busses.
Astute investors will point out that while the heavy-duty commercial EV space will be enormous – on the order of $200+ billion (the size of the global commercial vehicle market today) – it’s also a very crowded space that has attracted a lot of new entrants…
You have GreenPower Motor, Workhorse, Arrival, XL Fleet, Nikola, Canoo, Hyliion, and many more all vying for commercial EV market supremacy.
But… in this crowded space… Proterra is an early standout – and that’s a big deal, because the biggest winner in the commercial EV space will inevitably turn into a $50+ BILLION transportation technology titan.
What sets Proterra apart from the competition?
Three big things.
- The company has an enormous first mover’s advantage. Most other players in this space are in the “PowerPoints and prototypes” stage. Proterra has proven products on the road. The company’s vehicles are already shuttling people across town in New York and San Francisco. Collectively, vehicles with Proterra technology have logged 16 million real-world service miles, and the company is set to do $190 million in revenue in 2020. In other words, this is not just a concept company.
- Proterra is led by an experienced management team that is creating industry-leading commercial electric battery technology. Of note, the company’s Chief Technology Officer was one of the first battery engineers at Tesla, where he spent nine years designing battery systems for everything from the original Roadster to the Model 3. He is leading a talented team of former Apple, Tesla, and Honda engineers to create a vertically-integrated EV technology stack that includes a proprietary module that is capable of impact energy absorption, a flexible battery pack with patented thermal event mitigation, and an advanced end-to-end energy system that integrates with internally-developed software. The result is that Proterra batteries feature industry-leading energy density, and therefore, its vehicles have industry-leading range and industry-low costs.
- First mover and technology advantages have enabled Proterra to establish a vast partnership network and huge customer pipeline that de-risks the long-term growth narrative. Daimler – the world’s largest commercial vehicle manufacturer with seven iconic CV brands and $50 billion in annual revenue – is a Proterra customer and investor. The company’s current customers operate more than 30% of North America’s transit bus fleet. All Proterra needs to do to turn into a multi-billion-dollar revenue company, then, is simply execute on existing partnerships – which seems entirely possible given the company’s strong battery tech IP.
Given these structural competitive advantages, Proterra is well-positioned to emerge as one of the winners in the commercial EV revolution.
The company is targeting $2.5 billion in revenue by 2025. I think that’s totally doable. Indeed, my modeling suggests that revenues of $5+ billion are possible by 2030. A simple 10X EV/Revenue multiple on that – which is about average for this industry – implies a long-term valuation target here of $50 BILLION…
That’s more than 10X upside from where shares currently trade, meaning long-term investors should consider buying the dip in Proterra stock.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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