Stem STEM, an artificial intelligence (AI)-enabled software and services that lets its clients plan, install and manage clean energy assets, has witnessed a drastic decline of 90.6% year to date (YTD), significantly underperforming the broader Zacks Computer and Technology sector and Computers - IT Services industry’s growth of 33% and 19.4%, respectively.
Over the same time frame, Stem lagged behind its industry peers, including Vertiv VRT, Grid Dynamics GDYN and DXC Technology DXC. On a YTD basis, shares of VRT and GDYN rallied 162.7% and 43.8%, respectively, while DXC lost 2.6%.
This underperformance stems from decreased hardware sales due to the weak demand for hardware systems owing to financing delays and specific project-related interconnections. Moreover, customers transitioning to solar services further weakened the storage hardware sales.
The continued unpredictability of utility-scale storage hardware project timelines this year prompted Stem to adopt a strategic change to lessen its dependency on storage hardware source of income. As a result of these scheduling issues, bookings, revenues and accounts receivable collections were much lower than anticipated, ultimately hurting its share price.
Stem, Inc. Price and Consensus
Stem, Inc. price-consensus-chart | Stem, Inc. Quote
STEM’s Pessimistic Guidance for FY24
Stem’s weaker-than-expected third-quarter 2024 and YTD financial performance compelled it to lower its guidance for 2024. The company’s revenues for the third quarter and first nine months of 2024 plunged 78% and 70%, respectively, on a year-over-year basis.
Due to underwhelming financial performance in the first three quarters, Stem lowered its full-year 2024 revenue forecast range to $135-$155 million from $200-$270 million projected previously. The Zacks Consensus Estimate for 2024 revenues is pegged at $136.9 million, indicating a year-over-year decline of 70.3%.
This lower revenue projection would impact the value of the bookings drastically. Bookings are now forecasted in the band of $100-$500 million, down from the previous guidance of $600-$1,100 million.
During its third-quarterearnings call Stem pointed out two primary reasons for lower booking value - first, fewer battery storage hardware resales within its bookings; and second, a slow transition to shorter software and service contracts on the storage side, which typically last between three and five years as opposed to the previous 15-20 year contracts.
Business Transition to Hurt STEM’s Near-Term Prospects
With a renewed emphasis on creating and promoting its AI-enabled software and services, STEM recently unveiled a new business plan.
Significant operational changes will be required as a result of this transition, such as a reduction in battery resales, which have historically accounted for the majority of revenues, modifications to how it creates and promotes its goods and services, and a realignment of the business procedures.The company’s ability to successfully scale the software and services segments of business and meet all the operational and financial goals may be adversely affected by these changes, which are anticipated to result in lower revenues, higher expenses and temporary disruptions in its operations.
Additionally, evolving macro headwinds, such as protracted inflationary pressures, potential import tariffs and economic slowdown, escalating geopolitical issues, including the conflicts between the United States and China and the unknown effects of current and future trade and other regulations might hurt the stock.
STEM’s Enhanced Offerings to Aid Its Prospects
Amid a challenging economic environment, STEM asserts that with its edge device, services and AI-enabled software capabilities, it is well-positioned to support the massive global growth in renewable energy.
The recent launch of the PowerTrack Asset Performance Management suite from STEM is a potent software program that allows owners, operators and asset managers to centralize and simplify the administration of portfolios of storage, solar and hybrid energy assets. With the suite's highly customizable, persona-based dashboards and workflows, users can design and alter the data and interface that are most important to them.
Furthermore, Stem and Arizona Electric Power Cooperative, in collaboration with Prometheus Power, declared the successful completion of a solar and storage co-location project to assist in providing its distribution co-ops and public power members with clean electricity.
This project will incorporate the award-winning AI-powered clean energy software of Stem’s Athena, allowing for continuous operation and monitoring of the storage system for optimal performance on a single and cohesive platform.
What Should Investors Do With STEM Stock?
Stem’s innovative edge powered by AI and continued efforts to stand out in the market through a new business strategy might be a compelling buy. However, near-term challenges, including macroeconomic uncertainties, might pose a risk.
Additionally, STEM stock is not so cheap, as suggested by a Value Style Score of D.
STEM currently carries a Zacks Rank #3 (Hold), implying that existing investors should keep holding the stock while new buyers should wait for a better entry point into the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks Naming Top 10 Stocks for 2025
Want to be tipped off early to our 10 top picks for the entirety of 2025?
History suggests their performance could be sensational.
From 2012 (when our Director of Research Sheraz Mian assumed responsibility for the portfolio) through November, 2024, the Zacks Top 10 Stocks gained +2,112.6%, more than QUADRUPLING the S&P 500’s +475.6%. Now Sheraz is combing through 4,400 companies to handpick the best 10 tickers to buy and hold in 2025. Don’t miss your chance to get in on these stocks when they’re released on January 2.
Be First to New Top 10 Stocks >>To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
