Stem Stock: Time to Look at This Green Energy Management Provider

Stem Inc Uses Artificial Intelligence to Manage Renewable Energy Systems

The current extreme selling in the technology and growth segments of the stock market has presented aggressive contrarian opportunities to traders who are willing to deal with volatility. On the Nasdaq, 70% of the stocks are below their 50-day moving averages and 72% are below their 200-day moving averages.

While the sentiment toward technology stocks is bearish, I feel that there are several aggressive contrarian opportunities. What investors need is patience and the stomach to ride out the volatility.

One contrarian opportunity is Stem Inc (NYSE:STEM). As of this writing, its shares are down by a whopping 85% from their record high of $51.49, set in February 2021.

Stem stock is an intriguing play on the renewable energy sector. The company uses artificial intelligence to help its clients maximize their renewable energy generation and build efficient and clean power grids.

Advertisement

Stem Inc’s clients include Fortune 500 companies, independent power producers, project developers, project installers, and utilities. (Source: “Investor Relations,” Stem Inc, last accessed April 25, 2022.)

Given the aggressive green energy strategy worldwide, Stem stock has tons of upside potential.

Impressive Revenue Growth

Stem Inc grew its revenues from $7.0 million in 2018 to $127.4 million in 2021, representing a compound annual growth rate (CAGR) of 162.8%. (Source: “Stem, Inc. (STEM),” Yahoo! Finance, last accessed April 25, 2022.)

The company’s forward growth looks impressive. Analysts expect Stem’s revenues to increase by 200.5% to $382.8 million in 2022, followed by a 67.4% increase to $641.0 million in 2023.

Stem Inc is likely still years away from generating profitability and positive earnings before interest, taxes, depreciation, and amortization (EBITDA), but the company has the time and resources to accomplish that.

Stem Inc’s balance sheet has solid working capital, debt of $420.1 million, and sufficient cash of $920.8 million. The company’s interest expense of $17.4 million in 2021 isn’t a problem.

Significant Upside for Stem Stock

Stem Inc’s stock chart shows a high amount of potential. The obvious immediate targets are the 50-day moving average at $9.99 and the 200-day moving average at $18.83.

Chart courtesy of StockCharts.com

Stem stock’s Fibonacci retracement levels (the horizontal blue lines in the top half of the above chart) point to targets of $24.74, $30.52, and $34.64.

Moreover, insiders have been active buyers of Stem stock, which is a good sign. Over the last six months, insiders added a net 677,355 shares of Stem Inc to their investment portfolios. (Source: Yahoo! Finance, op. cit.)

Analyst Take

Given that Stem stock is down by 85%, or $120.00, from its record high that was set just over a year ago, it’s likely close to a bottom. Therefore, the stock’s downside risk is somewhat limited at this point. I view its upside potential as more than compensating for the risk.

Stem Inc’s revenue growth suggests that a higher price for Stem stock could be on the way, especially if the company can move toward profitability and positive EBITDA. The bullish tailwinds in the renewable energy segment should provide Stem with many opportunities.