Why Stem Stock Was Winning Big This Week

What happened

Mere days before it’s scheduled to publish its latest set of quarterly results, Stem (STEM -1.25%) got a boost from an analyst. The next-generation clean energy storage specialist’s stock was lifted by the move, rising by more than 16% week to date as of Friday before market open, according to data compiled by S&P Global Market Intelligence.

So what

That analyst was Jon Windham of UBS, who on Tuesday initiated coverage of Stem stock.

Windham is very bullish on the company, tagging it with a buy recommendation at a price target of $19 per share. Even after the shares bumped up on the news, that level still implied upside of over 40% on the stock’s current price.

There are several key reasons backing the UBS prognosticator’s unbridled optimism. He’s cheered by Stem’s leading position in the commercial storage market, which is growing at impressive rates. He also feels that the government’s recently passed Inflation Reduction Act will handsomely benefit Stem, as it makes qualifying energy storage assets eligible for the federal investment tax credit.

Now what

Stem is a young company, and like many young companies — particularly those with a sharp tech focus — it habitually loses money. Windham doesn’t see this trend lasting, though, and he believes Stem will start turning the corner in the very near future. He’s modeling a flip into positive earnings before interest, taxes, depreciation, and amortization (EBITDA) in the second half of 2023.

Investors will soon get a fresh set of figures to help determine if the company is indeed heading down a path to profitability. Stem is slated to unveil its third-quarter results next Thursday, Nov. 3.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Stem, Inc. The Motley Fool has a disclosure policy.

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