is romeo power a good buy
Source: istock, Romeo Power

Looking for the ‘Next’ QuantumScape? Romeo Power Could Fit the Bill

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Jan. 4 2021, Published 8:35 a.m. ET

2020 was a spectacular year for all of the companies in the EV and green energy ecosystem. Many electric vehicle plays listed through the SPAC (special purpose acquisition company) route. Now, Romeo Power has listed through the SPAC route. In 2020, battery maker QuantumScape listed through the SPAC route and soared after the listing. Can Romeo Power repeat QuantumScape’s magic and should you buy the stock?

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SPACs were the preferred mode for loss-making companies in the EV ecosystem in 2020. All of these companies received a good response from the markets. Barring Nikola, whose stock fell after fraud allegations by Hindenburg Research, all of the other electric vehicle SPACs performed exceptionally well in 2020.

romeo power batteries
Source: Romeo Power Facebook
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Romeo Power is a publicly-traded company

Romeo Power became a publicly-traded company after its reverse merger with RMG Acquisition Corp. The stock started trading on Dec. 30 under the ticker symbol “RMO.” Romeo Power's warrants trade under the ticker symbol “RMO.WT.”

Romeo Power on Stocktwits

Most users on Stocktwits are positive about Romeo Power. Username Soemotional points to the company’s $545 million in contracted revenues to support the bullish thesis. The user sees the stock as a good buy based on the current valuation.

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Another user Madmax70 pointed to the $40 target price that BTIG put on the stock towards the beginning of December. BTIG analyst Gregory Lewis is optimistic about Romeo Power stock due to its focus on commercial vehicles and its strategic partnerships that would help it expand globally.

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Romeo Power doesn't pay dividends

Romeo Power doesn't pay dividends and might not pay any in the foreseeable future. Looking at the massive growth that the company is witnessing, it would like to invest in growth instead of paying dividends. Most of the companies in the electric vehicle space, including Tesla, don’t pay any dividends. If you are an investor looking for dividends, then electric vehicle stocks aren't right for you. However, if you are a growth investor looking to capitalize on the electric vehicle story, Romeo Power could fit the bill.

quantumscape stock price
Source: Koyfin
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Romeo Power's valuation

Romeo Power has a market capitalization of less than $650 million. The valuation looks reasonable based on its contracted revenues and the strong growth that the sector is witnessing. QuantumScape has a market capitalization of $30 billion. At QuantumScape's peak, its market capitalization was even higher than Ford Motors.

Romeo Power's stock forecast

According to TipRanks, only two analysts cover Romeo Power and the stock’s target price is $40, which is a premium of almost 78 percent over its current prices. In contrast, most of the other electric vehicle plays are trading above their target prices.

Romeo Power looks like a good stock to buy. Batteries are the core component of an electric vehicle. Romeo Power is placed in the right industry at the right time. Electric vehicle sales are expected to soar over the next decade. The valuation also looks reasonable based on the relative valuations of other companies in the space. Romeo Power prides itself on making the most energy-dense batteries, which is another added advantage over its competitors.

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