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The juice ran out of EV shares in 2021. However, if you’re an investor who chooses the better mousetrap theory than Romeo Power, it looks like a stock that you can buy now and build your position further as the company begins to live up to its potential.
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April 1, 2021 5 min read
This story originally appeared on MarketBeat
Shareholders in Romeo Power (NYSE: RMO) find out that electric vehicle (EV) fatigue is a real thing. After weaker than expected sales, the shares of the RMO share fell by almost 20% in mid-day trading. And stocks are down 55% since the start of the year.
The juice disappeared from EV stocks in 2021. The long-term story still continues. However, investors are beginning to understand that the near-term reality of electric vehicles will take some time to complete. The challenge for investors is that the EV sector is extremely crowded as many companies went public quickly over the past year.
However, I believe Romeo Power will be top of the list if you weed out the stocks with real potential. And with stocks below $ 10, this could be a great buying opportunity for the risk tolerant investor looking for a long term bet in the EV sector.
A SPAC for everyone
Investors will remember 2020 for many reasons. It was the year remote working became as important as e-commerce. It is also known as the year of the special purpose vehicle (SPAC). A SPAC is simply another way for a company to go public, typically through a reverse merger.
This is not a new concept, but in 2020 the number of SPACs exploded. One difficulty for investors was simply keeping up with the plethora of new offerings. This is especially true in the EV sector, where several companies have used SPAC companies to go public.
And as the saying goes, if you wanted to find a prince among SPAC stocks, you had to kiss lots of frogs. But earlier this year I found out about Romeo Power. I liked what I heard; Not because I think it’s a short-term winner, but because of its long-term history.
The better mousetrap argument
Romeo Power is not an electric vehicle manufacturer. Rather, the company is active in the field of battery development. This is a segment that is highly correlated to the broader EV sector. There’s a reason for that. Just like internal combustion cars need oil and gas; Electric vehicles require a long-lasting, safe battery.
This has proven easier said than done. Romeo Power offers a solution that addresses three of the most common barriers to the adoption of electric vehicle batteries. The first of these is energy density, which determines how far a vehicle can travel on a single charge. According to Romeo Power, the solution will provide a battery with an advantage of 25% energy density.
The second obstacle is to develop a battery that can withstand any temperature condition. Batteries must be able to withstand extreme climates. Romeo Power is working to provide a battery that will allow the battery to maintain an optimal operating temperature.
And the third obstacle is safety, which Romeo addresses through a rigorous manufacturing process that puts safety first.
In addition, Romeo Power focuses on commercial vehicles such as long-distance buses and garbage trucks. This is a key market where companies are expected to renew their interest in electrifying their fleets as the pandemic subsides.
The receipts may have to wait
Romeo faces the challenge of supply and demand. In fact, the main reason the company’s shares plummeted is the announcement of drastically lower sales projections for the coming year.
In an earlier investor presentation, the company forecast $ 140 million in revenue in 2021. However, the company’s earnings report cut it down to between $ 18 million and $ 40 million. On the one hand, even the lower end of this range is twice as high as 2020 sales, but if it falls well below the projected $ 140 million.
Was Romeo Power Purposely Misleading? It’s hard to tell, but this is a problem for companies going public through a SPAC. Investors can follow paper trails less. In this case, however, I think Romeo Power is saying the drop in sales will be due to the shortage of battery cells. In this case, investors are likely to view the current decline in RMO shares as a buying opportunity.
The conclusion at RMO Stock
I consider myself an investor rather than a trader. This is not intended to belittle traders. They are just two different disciplines. Right now, the near-term setup for RMO stocks doesn’t look particularly optimistic. although it seems a little oversold.
However, if you’re an investor who chooses the better mousetrap theory than Romeo Power, you look like a stock that you can buy now and keep building your position as the company begins to realize its potential. Only three analysts are currently rating Romeo Power. However, two give the stock a buy rating and the overall price target is $ 20, indicating a much higher uptrend.