Romeo Power (RMO) Stock Is a Good Opportunity for Long-Term Investors

Romeo Power stock has been on a steady downtrend since it got listed after its reverse merger with RMG Acquisition SPAC in December 2020. On Aug. 19, the stock hit an all-time low of $4.2, which suggests a downside of 84 percent from the time it got listed and hit its all-time high. After the stock’s weak performance, will it go up? What is Romeo Power's (RMO) stock forecast for 2025?

Founded in 2016, Romeo Power is an energy technology company that specializes in building lithium-ion modules and packs for commercial EVs.

Romeo Power’s earnings have been a big miss on Wall Street analysts’ expectations. In the first quarter, the company reported disappointing earnings and a roughly 80 percent cut to its 2021 revenue target. It blamed the underperformance and weak guidance on a global cell shortage. In the second quarter, Romeo missed analysts’ revenue estimates of $2.37 million by 61 percent. Its disappointing guidance has led many analysts to lower their estimates and ratings.

Currently, four analysts cover RMO stock. Two analysts have a buy, one has a sell, and one has a hold rating on the stock. Analysts’ target price of $10.18 implies a potential upside of 101 percent.

Recently, Romeo Power entered into a long-term supply agreement for lithium-ion battery cells with LG Energy Solution. Under this agreement, LG will supply cells to Romeo Power that equal 8GWh of energy through 2028. This should address some of the battery cell shortage issues for the company.

The overall EV penetration is rising and the commercial EV penetration is expected to reach 9 percent by 2025. Since the battery is the most expensive component of EVs, accounting for 30 percent–40 percent of their value, EV battery manufacturers should have a large addressable market.

The Biden administration is expected to pursue favorable policies towards EV infrastructure, which will be positive for battery players like Romeo Power, Microvast, and QuantumScape.

In this favorable industry landscape, Romeo is well-positioned since it has a strong order book and counts Paccar, Nikola, Phoenix Motorcars, and Lightning Systems among its customers. Romeo Power has already contracted $544 million in future revenues with up to $2.2 billion under advanced negotiation. Its short-term issues stem from supply chain issues, which are impacting the auto industry throughout the world. In fact, Romeo Power's current steep drop in price offers a good opportunity to long-term investors.