Electric vehicles (EVs) utilize chemical energy, stored in rechargeable battery packs, for driving. Lithium-ion batteries are currently the most popular type of EV batteries.
Fortune Business Insights reports that the global EV battery market is anticipated to reach $154.9 billion by 2028, growing at a CAGR of 28.1% during the forecast period. The rising demand for EVs, advancement in battery performance, and a decrease in the price of Lithium-Ion batteries should act as key growth catalysts. Consequently, companies from this industry should benefit over the long term.
Given this backdrop, today I’ll analyze and compare two EV battery stocks, Romeo Power, Inc. (RMO) and SES AI Corporation (SES), to find out which one currently presents a better buying opportunity.
Romeo Power is a California-based energy storage technology company that produces lithium-ion battery modules and packs for EVs in North America. Founded in 2012, SES operates as a battery manufacturer that produces Li-Metal rechargeable batteries for EVs and other applications.
Over the past month, RMO stock has slid about 33.5%, and SES has soared 18%.
Recent Developments
On February 23rd, Romeo Power announced that it had signed up a 3-year extension of a current supply deal with one of its long standing clients. Under the terms of the agreement, the minimum value of the arrangement stands at around $17 million, with more upside opportunity. Romeo's Chief Strategy and Commercial Officer Lauren Webb said, "Our proprietary battery technology has once again demonstrated its industry-leading position and value, and we continue to maintain and foster relationships with our customers as a result."
On February 4th, SES AI Corporation declared it had accomplished a business combination with Ivanhoe Capital Acquisition Corp. On the grounds of this, SES' Class A common stock and warrants were listed on the NYSE under the tickers “SES” and “SES.WS,” respectively. Later in February, SES incorporated its subsidiary SES Korea with plans to begin building a pre-production facility in South Korea. This move intends to accelerate A-sample batteries development with its strategic collaborators GM, Hyundai, and Honda. The company will use funds raised by the recent business combination to speed up its growth strategy.
Financial Overview & Analysts’ Estimates
On March 1st, Romeo Power released its fourth-quarter earnings results. In Q4, Romeo Powers' revenue increased 94.94% year-over-year to $9.06 million, driven by higher product revenues, arising from increased delivery on the four supply contracts that started production and delivery during 2021. Moreover, the company was able to beat Wall Street consensus estimates by $2.49 million. However, its Q4 Non-GAAP EPS has been reported at ($0.26), missing analysts’ expectations by $0.07. As of December 31st, 2021, the company's cash and investments totaled $119.9 million.
Besides, the company views its 2022 total revenue in the range between $40 and $50 million. For the first quarter, the analysts expect RMO's EPS to stand at ($0.25), which is a decrease compared to $0.66 a year ago. However, a $9.75 million average revenue estimate for FQ1 implies an 824.57% YoY increase.
SES AI Corporation hasn’t revealed its fourth-quarter report so far. For this reason, let’s analyze the company’s recently filed S-1 report. To date, SES AI Corporation hasn't made any material revenues yet. As of September 30th, 2021, the company's operating expenses grew 147% year-over-year to $8.06 million, driven by a 66% YoY rise in Research and Development costs to $3.68 million and 318% YoY growth in General & Administrative expenses to $4.37 million. As a consequence, its net loss was $8 million, representing a 141% increase compared to its year-ago loss of $3.31 million.
With supposed cash proceeds of about $489.3 million from the business combination and no redemption, SES cash and cash equivalents are anticipated to come in at $519.6 million. Considering SES' nine-month cash burn rate of $17.8 million, the company's liquidity position looks strong, excluding the dilution risk.
Analysts foresee SES' earnings to stand at ($0.02) a share in the fourth quarter of 2021.
Comparing Options Market Sentiment
Looking at the option chain for both RMO and SES, we can determine options market sentiment by comparing the calls/puts ratio. In RMO's instance, the open calls/open puts ratio at the $2.00 strike price comes in at 6.38x for options that expire on Aug. 19th, implying a bullish options market sentiment. When it comes to SES, the open calls/open puts ratio at the $7.50 strike price is 21.6x for options that expire on July 15th, indicating an optimistic market sentiment as well.
Conclusion
In my opinion, RMO is currently a better long-term buy. RMO is in a solid position to benefit over the long term as it is already taking key steps to capitalize on the industry's growth. The company's recently extended supply agreement is expected to improve its top-line figures as well. In addition, RMO's overall financials look relatively better than SES, with impressive forward revenue growth rates. Finally, RMO has favorable options market sentiment, indicating a possible stock price appreciation.
RMO shares were trading at $1.43 per share on Wednesday morning, up $0.06 (+4.38%). Year-to-date, RMO has declined -60.82%, versus a -9.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Oleksandr Pylypenko
Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.
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