STEM

We rate STEM, INC. (STEM) as Avoid with a composite score of 39.1/100 at a current price of $11.33. The stock falls in the bottom quintile of our universe across key quantitative factors, and the multi-factor weakness suggests a high probability of continued underperformance.

The rating is primarily driven by strength in momentum (58th percentile) and value (51th percentile), which together account for the majority of the composite score. Offsetting weakness in stability (10th percentile) and investment (24th percentile) tempers our overall conviction. We assign a No Moat rating (24/100), Very High uncertainty, and Poor capital allocation.

Key items to watch: the path to profitability. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

STEM, INC. holds a top-quartile position (#0 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 39.1/100 places it at rank #3656 in our full 7,333-stock universe. At $146M in market capitalization, STEM, INC. is a small-cap player in the Manufacturing space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 12%, though momentum at the 58th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 31% (-11.9pp vs sector) narrow to operating margins of -157% (-157.9pp vs sector) and net margins of -29.4%, yielding a gross-to-net conversion rate of -96%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $11.33, STEM, INC. is trading near fair value based on current fundamentals. Our value factor score of 51/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 17.4x (a 22% discount to the sector median of 22.3x), P/S of 0.7x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a Very High uncertainty rating to STEM, INC.. The stock exhibits multiple compounding risk factors: elevated market sensitivity (beta of 5.98), current negative profitability (net margin -29.4%), below-average price stability (10th percentile). The extreme uncertainty around future cash flows makes precise valuation difficult, and the range of outcomes is exceptionally wide. Only investors with high risk tolerance and extended time horizons should consider this name.

Specific risk factors that inform our assessment include: elevated market sensitivity (beta of 5.98); current negative profitability (net margin -29.4%); below-average price stability (10th percentile); weak quality scores (34th percentile). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 10th percentile and quality factor at the 34th percentile provide a quantitative summary of the overall risk landscape.

We identify limited risk mitigants at this time, which contributes to our very high uncertainty assessment. Investors should monitor for improvement in balance sheet metrics, margin stability, and business predictability that could warrant a downgrade in our risk assessment over time.

We rate STEM, INC.'s capital allocation as Poor. Key concerns include negative profitability, weak asset returns (ROA 1.5%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — STEM, INC. significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, STEM, INC. receives a Avoid rating with a composite score of 39.1/100 (rank #3656 of 7,333). Our quantitative framework assigns a No Moat (24/100, trend: stable), Very High uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 36/100.

Our analysis does not support a constructive view on STEM, INC. at this time. The combination of limited competitive advantages, very high uncertainty, and poor capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.