Star Peak Energy (NYSE:STPK) is a SPAC (special purpose acquisition company) that will merge with battery-storage management company Stem, Inc. Once that happens and the symbol changes to STEM, expect to see STPK stock (actually STEM stock) essentially double from here.
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On Dec. 4, Stem, Inc., an AI-driven clean-energy-storage systems manager, agreed to a reverse merger with Star Peak Energy Transition (“Star Peak SPAC”). Stem calls itself a “pure play clean smart energy storage company.”
Essentially, they provide corporations with battery backup by charging during low electricity usage and dispensing electricity during peak hours. For example, they helped California corporations get through the rolling blackouts several years ago.
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Moreover, the company already produces revenue and is on track to be EBITDA (earnings before interest, taxes, depreciation and amortization) and free-cash-flow positive in several years. I believe the combined company stock will double from here. Here’s why.
Star Peak SPAC’s Valuation
One of the main reasons why I believe STPK stock will double is because other energy storage and charging company stocks are highly valued. For example, Blink (NASDAQ:BLNK) and Switchback Energy (NYSE:SBE), which plans on merging with EV-charging company ChargePoint, have very high valuations compared to STPK stock.
First, let’s establish what Star Peak’s present pro forma valuation is right now. Page 32 of the Star Peak SPAC slide presentation lays out the economics of the merger transaction. For example, once the merger closes, there will be 135.4 million shares outstanding.
Therefore, on a pro forma merger basis, the market capitalization for STPK stock is now $3.969 billion (i.e., $29.31 share price, as of Jan. 26, times 135.4 million shares). Moreover, since the merger brings in $525 million, the pro forma enterprise value will be $3.444 billion (i.e., $3.969 billion minus $525 million).
Next, Stem projects on page 29 of the slide presentation that it will make $147 million in revenue in 2021. By 2022, Stem forecasts revenue will double to $315 million.
Finally, its enterprise-value-to-sales multiple is 23.4 times 2021 forecast revenue (i.e., $3.444 billion divided by $147 million). Moreover, by 2022, the multiple falls to 10.9 times (i.e., $3.444 billion divided by $315 million).
These ratios are very cheap, especially in comparison with EV charging companies, as I mentioned.
Comparing Its Valuation With Blink and ChargePoint
For example, Blink has an enterprise-value-to-sales ratio of 409 times, according to Yahoo! Finance.
Moreover, for 2021, Blink has a $1.83 billion enterprise value, and it expects to make 2021 revenue of $11 million. Therefore, its enterprise-value-to-sales multiple for 2021 is 166 times. That is over 7 times higher than the 23.4 multiple for 2021 for STPK stock.
In addition, ChargePoint has a very high enterprise-value-to-sales multiple, even for 2021. I estimate that it trades right now at 59 times enterprise-value-to-sales. This is only 2.5 times higher than the 23.4 multiple for STPK stock.
On page 33 of ChargePoint’s presentation, Switchback Energy says the combined company will have 304.9 million shares outstanding once the merger closes. This gives it a pro forma market capitalization of $12.348 billion, since SBE stock trades for $40.50, as of close on Jan. 26. After deducting $648 million in net cash on the pro forma balance sheet, the enterprise value is $11.7 billion.
Since ChargePoint estimates, on page 31 of its presentation, that its 2021 revenue will be $198 million, the enterprise-value-to-sales multiple is 59 times. This is seen by dividing $11.7 billion by $198 million.
Therefore, the average of Blink and ChargePoint’s multiple to sales is 118 times. But even if we just used ChargePoint’s valuation of 59 times, then STPK’s enterprise value would be 2.5 times higher.
What STPK Stock Is Worth
That would give Star Peak an enterprise value of $8.673 billion (i.e., 59 times $147 million in 2021 forecast sales). In addition, we add back the $525 million in cash that was previously deducted in order to get the market capitalization. That means STPK stock would be worth $9.198 billion.
Therefore, Star Peak is worth 132% more than its $3.969 pro forma market cap (see above). In other words, STPK stock is worth $67.91 per share, well over double its price today of $27.50 (at time of publication). That is a really good potential return on investment for most investors in the energy sector.
On the date of publication, Mark R. Hake holds a long position in Newborn Acquisition (NBAC) stock and Switchback Energy (SBE) stock.
As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. Mark Hake runs the Total Yield Value Guide, which you can review here.
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