Star Peak Energy Transition (NYSE:STPK) is a special purpose acquisition company (SPAC) that will take a company called Stem public on April 27. STPK stock has already had a wild ride.
The ride up was based on hype over Stem’s Athena software. The ride down was based on the market realizing that Athena is still a small business. Most Stem revenue comes from California battery farms that manage power from solar and wind for that state’s grid. Athena is the management software.
In theory, taking Athena to the nation’s power grids, and the world’s, will provide enormous self-sustaining revenue streams to Stem. That’s the bull case for STPK stock. But how long will it take for that ship to come in? And what might happen in the meantime? That’s what the bears are worried about.
The Bull Case for STPK Stock
STPK opened for trade April 19 at about $26 per share. That’s a market capitalization of about $1.25 billion. About $608 million is flowing into Stem in the SPAC deal, which includes $225 million from private investors. The post-merger valuation is about $3.5 billion.
STPK was created with an implied value of $1.35 billion for Stem. The company had estimated 2020 revenues of $147 million. Stem believes it will double this revenue by 2022 and hit over $1 billion in 2025, with rising margins.
Around the time STPK stock peaked at about $50 per share, Stem CEO John Carrington made its bull case at Greentech Media, now Wood MacKenzie.
The bull case is aspirational: Climate change is real. The new administration is demanding action. States and major corporations are leading the clean energy revolution. As a result, Stem wants to be part of the solution. Utilities will continue to build renewable power systems. Stem’s batteries and software will manage them. The company calls this “AI-driven energy storage.”
At the heart of the bull case is Athena, which can take in power from renewable energy projects, manage the batteries and thus manage the grid.
CNBC has called this a SPAC “to die for.” Citron Research has put a $100 price target on it.
The Bear Case for STPK Stock
At its peak in February, the implied valuation for Stem was $7 billion. Why was it cut in half?
One reason is that SPACs are no longer fashionable as they were in February. Many companies brought public in SPAC deals are losing money.
The second reason is Stem’s revenue mix. Stem’s battery hardware is a commodity. Athena software is expected to have high and rising margins, with subscriptions that last 10 to 20 years. But it will take years for Athena subscriptions to become the driver for Stem’s business.
Thus, the money now coursing through the market doesn’t have patience for things like Stem. People saw SPACs doubling, so the money came rolling in from every side. Then Bitcoin (CCC:BTC-USD) got hot, then NFTs (non-fungible tokens), and a lot of the money rolled out.
The Bottom Line
InvestorPlace writers are generally high on STPK stock.
Chris Markoch wants you to get in before the merger becomes final. Chris MacDonald wrote recently of a possible deal with Tesla (NASDAQ:TSLA). Josh Enomoto says that Stem’s long-term value thesis is sound, despite its recent fall.
In a serious investment world, Stem would remain private until its market became established and it could show a profit. But the SPAC cash is too good for Stem to resist. What you’re buying today, then, is a cash-rich company with software whose future is ahead of it.
If you’re under 40 and can wait for your profit, STPK is a worthwhile speculation.
At the time of publication, Dana Blankenhorn directly owned no shares, directly or indirectly, in any stock mentioned in this article.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.
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