Stem Inc. Hold Rating: Balancing Positive Cash Flow Milestones with Reverse Stock Split Risks

In a report released today, Thomas Boyes from TD Cowen maintained a Hold rating on Stem Inc (STEM – Research Report), with a price target of $0.50.

Thomas Boyes has given his Hold rating due to a combination of factors that present both opportunities and challenges for Stem Inc. On the positive side, the company has reported its first quarter of positive operating cash flow, which is a significant milestone. The growth in Annual Recurring Revenue (ARR) to $57 million, an 8% sequential increase, demonstrates the effectiveness of Stem’s software-centric strategy, particularly with the strong interest in its PowerTrack offering. Additionally, the company’s cost-saving measures, including a reduction in force, are expected to improve profitability by saving $30 million annually.
However, Boyes also notes potential concerns that justify a Hold rating. Despite the positive cash flow and reaffirmed FY25 guidance, there is a risk of downward pressure on the stock due to the planned reverse stock split, which will be voted on at the upcoming Annual Shareholder Meeting. This uncertainty, coupled with the need for Stem to consistently meet its guidance targets, suggests a cautious approach is warranted, leading to the Hold recommendation.