STEM stock a pass, Roth says

Following third quarter results that came in below expectations, Roth MKM analyst Justin Clare says Stem Inc. (Stem Stock Quote, Chart, News, Analysts, Financials NYSE:STEM) is not a stock you should be buying right now.

On November 2, STEM reported its Q3, 2023 results. The company posted Adjusted EBITDA of negative $900,000 on revenue of $133.7-million, a topline that was up 34 per cent over the same period last year.

“We generated strong results in the third quarter, highlighted by record bookings, AUM, CARR, and contracted backlog,” CEO John Carrington said. “Our bookings grew more than 3x versus the same quarter last year, which led to a 17% sequential increase in CARR. We are raising our CARR guidance based on our strong bookings, which we believe positions us well to grow our high-margin software and services revenue in 2024 and beyond.

Clare summarized the quarter.

“STEM delivered a Q3 miss and narrowed the 2023 EBITDA guidance range,” he said. “Management announced that positive adj. EBITDA is expected for 2024. Demand appears strong as STEM’s bookings of $676mn were well above guidance and CARR increased 17% QoQ. Despite the strength in orders, we are incrementally less positive on the outlook for hardware margins given the downward revision to prior hardware revenue and the margin implications.
Additionally, we continue to look for acceleration in battery software revenue, which declined 29% QoQ.

In a research update to clients November 6, Clare maintained his “Neutral” rating and twelve-month target price of $3.70 on STEM.

The analyst thinks STEM will EBITDA of negative $23.8-million on revenue of $550.6-million in fiscal 2023. He expects those numbers will improve to EBITDA of positive $5.4-million on a topline of $766.5-million the following year.