Romeo Power Inc

Founded in 2016, Romeo Power Inc (NYSE: RMO) provides advanced electrification solutions for commercial vehicle applications.

Investment Rationale – SELL at USD 7.24

• Inflationary market conditions, and resurgence in Covid-19 cases can derail the economic growth.
• During Q1 FY21, services revenue declined by 100% year-on-year due to deferred engineering and prototype services.
• As of 31 March 2021, the Company had an accumulated deficit of US$87.4 million.
• RMO’s stock price has fallen over 29% in the past year, reflecting a significant underperformance against the NYSE index.
• From a technical standpoint, the stock price sustained below the 50-day EMA (USD 8.78), indicating a bearish price momentum.

Risk Assessments

• The rising cost of revenues due to high production labour personnel costs and certain fixed overhead can impact the Company’s profitability margins.
• There is a significant risk to revenues due to pricing pressure, unavailability of raw materials, and restricted operations amid the Covid-19 pandemic.

Recent News

Management Change: RMO appointed Kerry A. Shiba as Chief Financial Officer (CFO) of the Company, effective from 6 July 2021. Adjacently, Lauren Webb (former CFO) will transition to a new role as Chief Strategy and Commercial Officer.

Financial Highlights for the quarter ended 31 March 2021 (as on 17 May 2021)

 (Source: Company Website)

• During Q1 FY21, the Group generated revenue of US$1.1 million, reflecting a significant decline against Q1 FY20.
• The product revenue plunged 78.5% year-on-year in Q1 FY21 due to decreased deliveries of commercial vehicle products.
• As of 31 March 2021, the Company had nearly US$287.5 million in Cash, cash equivalents and investments. It reflected a decrease of US$4.9 million from the position on 31 December 2020.

Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Conclusion

RMO has been facing supply constraints which can hamper the Company’s revenue growth. Moreover, it is a penny stock with low market capitalization, showing a significant downtrend over the past year. Amidst the rising uncertainties, RMO can be adversely impacted by business, economic and competitive factors. Also, constrained cell supply can keep the outlook gloomy in the short run. As the Covid-19 pandemic induced disruption has already impacted its revenue generation and cash flows, it is prudent to liquidate the position. The stock made a 52 week High and Low of USD 38.90 and USD 6.33, respectively.

Based on the weak fundamentals, restricted cell supply, subdued revenue generating capability, economic instabilities, we have given a “SELL” stance on Romeo Power Inc at the current price of USD 7.24 (as on 8 July 2021 at 10:38 AM ET) while we look forward to reviewing how the macroeconomic conditions impact the demand for commercial electric vehicles.

*The reference data in this report has been partly sourced from REFINITIV.

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