Romeo Power Inc

Romeo Power Inc (NYSE: RMO) is a US-based energy technology leader. The Company is engaged in electrification solutions used in complex commercial applications. The Company uses an innovative battery management system and advanced hardware to deliver reliability, safety and performance to its customers.

Investment Highlights – Romeo Power Inc – Speculative Buy at USD 14.31

• Despite being in the development stage, the Company has a well-positioned balance sheet to meet working capital needs.
• In the last one year, the Company delivered a significant return of ~42.11% and delivered higher returns compared to the benchmark Index.
• As per valuation metrics, Price/Earnings & Price/Cash Flow multiples of Romeo Power Inc are currently lower as compared to the corresponding multiples of the Automobile & Auto Parts industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, 14-day RSI is in the oversold zone and is currently supporting an upside move (around 17 level), which means the stock price could increase in the short term.

Key Risks

• Any change in regulations and government policies could affect the overall business of the Company.
• The market conditions in which the Company operates is full of challenges and might impact the operational performance and reduce financial performance as well.

Financial Highlights – Q3 and 9M FY2020 (30 September 2020) (released on 9 November 2020)

(Source: Quarterly Report, Company Website)

• For the third quarter and nine months period of FY2020, the Company did not generate any revenue and witnessed an increase in expenses for the period.
• Due to higher expenses, the profitability for the period declined significantly. The Company reported a net loss in Q3 FY2020 of $491,685. The net income for 9M FY2020 declined significantly to $125,935.
• The cash balance as on 30 September 2020 declined to $315,502 (31 December 2019: $1,175,207).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

The Company has shown a decline in financial performance in the third quarter and the first nine months period of the financial year 2020. The Company is in the development stage and hence rely on grants and cash balances to carry on all the business activities. The operations are financed by the sale of equity securities by private placements. The Bottom-line performance has declined, with profitability remained in the negative zone in Q3 FY2020. Despite a lower liquidity position, the Company maintained a well-positioned balance sheet. Romeo Power Inc’s operational performance was not materially impacted by the impact of the covid-19 pandemic, while it resulted in the increased costs and disruption in the supply chain. The Company is focused on driving growth across the platform and executing business objectives. The stock made a 52-week low and high of USD 9.50 and USD 38.90, respectively.

Based on the above rationale, we have given a “Speculative Buy” recommendation on Romeo Power Inc at the closing price of USD 14.31 (as on 18 February 2021).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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