Why Romeo Power (RMO) Is a Good Stock to Buy After the Crash
Romeo Power (RMO) stock is down 54 percent YTD. What’s the forecast for RMO stock in 2021? Is it a good long-term investment?
March 31 2021, Published 9:41 a.m. ET
Romeo Power (RMO) stock fell more than 4 percent on March 30 and lost over 14 percent in the pre-market trading session on March 31. The stock has been falling significantly since the company reported its preliminary fourth-quarter earnings results. RMO stock is down 54 percent YTD. So, what’s the forecast for RMO stock in 2021? Is it a good stock to buy or should investors stay away after the crash?
Founded in 2016, Romeo Power is an energy technology company that specializes in building lithium-ion modules and packs for commercial EVs. The California-based company went public in December 2020 through a reverse merger with the blank-check company RMG Acquisition Corp. The transaction valued Romeo Power at around $1.33 billion.
RMO stock is falling.
RMO stock is down 14.1 percent at $8.91 in the pre-market trading session on March 31. The stock fell significantly after the company provided financial and business updates. While the revenues surged in the fourth quarter, Romeo expects a weaker 2021 amid battery cell shortages.
In the fourth quarter, Romeo’s sales grew by 48 percent YoY to $4.6 million. However, the company reported a net loss of $19.1 million in the fourth quarter compared to $13.2 million a year ago. In 2021, Romeo expects to generate revenue in the range of $18 million–$40 million. Previously, Romeo Power expected to report revenue of $140 million in 2021. The significant drop is mainly due to a shortfall in battery cell capacity globally.
RMO Stock Price
Romeo Power's major customers
Romeo Power has already contracted $544 million in future revenues, with up to $2.2 billion under advanced negotiation. The company’s major customers include Nikola, Phoenix Motorcars, and Lightning Systems. Romeo has also secured a multi-year production contract with Lion Electric. The contract is expected to generate $234 million in revenue for Romeo over a five-year period starting in 2021.
RMO’s stock forecast
According to estimates compiled by CNN, analysts' median target price is $18 for RMO stock, which is 73.6 percent above its current price. Among the five analysts tracking RMO, four recommend a buy and one recommends a sell. The highest target price of $40 is 286 percent above the stock's current price, while the lowest target price of $12 is 16 percent above the stock's current price.
Is Romeo Power a good long-term investment?
Romeo Power stock looks like a good buy based on the strong growth outlook and valuations. Batteries are a crucial element of an EV. EV sales are expected to skyrocket under the Biden administration. As a result, Romeo’s top line could get a boost as EV adoption soars. According to IHS Markit, the total addressable market for commercial vehicles is projected to be around $665 billion globally, while in North America and Europe is projected to be around $225 million.
Romeo stock is trading at an NTM EV-to-sales multiple of 9.8x, which looks attractive compared to its peers like Nikola, Tesla, and QuantumScape. The fall in RMO stock could be a good buying opportunity.