Stem (NYSE:STEM) saw its shares plunge after the company reported second-quarter numbers that didn’t quite live up to investor expectations. Despite that, we still see STEM stock as a solid buy.
Now, the numbers themselves were great.
Revenues rose 339% year-over-year. The contracted backlog rose 13% sequentially, while the 12-month forward pipeline expanded 21% to $1.7 billion.
Contracted assets under management (AUM) also rose 9% from the previous quarter. Even gross margins meaningfully improved.
But management didn’t lift its full-year guide, which investors hoped would happen after such a strong quarter.
We don’t see this as worrisome, however. The full-year guide is very ambitious. So, management holding the line is bullish.
And plus, this is a new management team, and they don’t want to disappoint Wall Street. They’re playing the “underpromise and overdeliver” game. That’s a very reasonable move.
The Bottom Line on STEM Stock
STEM stock is materially undervalued after the sell-off.
The company is gaining significant momentum in the front-of-the-meter (FTM) energy storage market, in the form of utility-scale energy storage projects.
We see this form of storage having a very bright future given the current strains on the power grid, the introduction of intermittent renewables into the energy ecosystem and the potential passing of a new tax credit for energy storage systems.
And when we say they’re gaining momentum, we don’t mean to say they’re trailing the pack. Stem already operates in four countries, nine states and over 200 cities. And its addressable market is expected to grow 25x by 2050.
What it comes down to is the fact that STEM stock is a long-term investment, not a near-term trade. So, know the difference, but the dip, and check back in two to three years. By then, STEM stock will be cruising at $100-plus prices.
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On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
