Following the trend in 2020 and earlier this year, growth stocks, especially IPOs and special purpose vehicles (SPACs), have fallen out of favor. It is not entirely without merit; After all, the number of SPACs more than quadrupled in 2020 compared to 2019 and the number of IPOs more than doubled. Not only that, but 2021 has already passed the madness of 2020, and we are only in May.
So much activity has to come with a lot of speculation, bad actors, and below par business. However, this does not mean that all IPOs and SPACs are bad or even overpriced companies. In fact, some SPACs brought some really exciting companies to market. Sure, investing in an early-stage company is risky, but when a breakthrough technology company catches on, the upward trend can be immense.
Therefore, investors should get to know Ouster (NYSE: OUST), Desktop metal (NYSE: DM), and Romeo Power (NYSE: RMO)that have the potential to transform the LiDAR, 3D printing and electric vehicle industries – industries that are themselves destined for brand new growth.
Ouster’s digital LiDAR revolves around analog circles at a fraction of the cost
The LiDAR company Ouster was founded in 2015 by two engineers from Stanford and that year invented the Ouster digital LiDAR concept. LiDAR uses lasers to enable autonomy not only in self-driving cars, but also in automated industrial applications, drones and intelligent infrastructures.
As semiconductor chips continue to advance, digital-based LiDARs improve older analog models, lower costs, increase capabilities, and open up entirely new markets. Think cameras – they used to be big, bulky, and expensive tools, but thanks to the digital revolution, everyone now has an advanced camera that fits into a smartphone. While many associate LiDAR with self-driving cars, its uses are much broader. According to Ouster, there are many more opportunities for LiDAR to win in the industrial, intelligent infrastructure, and robotics sectors.
While not without competition, Ouster seems to have a “special sauce”. The company has 29 patents and more than 100 patents pending worldwide for its digital architecture and proprietary chipset. In addition, the company has developed its offerings with a single common architecture that can be infinitely customized through software-defined changes. This simple, software-defined architecture is very attractive to developers and not dissimilar to the approach NVIDIA took on its CUDA platform for its GPUs – and we all know how well that turned out.
While SPAC presentation predictions should always be taken with a grain of salt, Ouster predicts sales of nearly $ 1.6 billion and operating income of around $ 564 million by 2025. However, its market cap is 40% below its recent highs in the wake of the SPAC sell-off, now only about $ 1.9 billion.
Revenue isn’t really going to come in really serious in a few years’ time, and the company only forecasts revenue of around $ 33 million this year. Still, Ouster is rapidly adding customers, with over 500 in some sort of trial today and over 40 strategic customer agreements totaling $ 385 million through 2025 – and those deals are growing quarterly.
If Ouster delivers on its promise and LiDAR becomes widely available for a variety of uses outside of cars over the next decade, its inventory will be a huge bargain.
Desktop Metal finally wants to fulfill the original promise of 3D printing
Almost a decade ago, 3D printing materials were all the rage on Wall Street. Many had thought that 3D printing would turn traditional manufacturing on its head and usher in a new era of cost-effective and highly customizable manufacturing capabilities across a range of industries.
As many now painfully know, this did not happen and many early players saw their stocks drop from tremendous heights. 3D printing proved to be a useful tool for prototyping, design, and tooling, but in terms of replacing traditional manufacturing, the technology was no match for snuff.
That is, until now – at least according to Desktop Metal, which went public on SPAC in December. Desktop believes that the code for 3D printing has been cracked for mass production, which will usher in what is known as “Additive Manufacturing 2.0”. According to the Wohlers Report, a 3D printing consultancy, additive manufacturing could skyrocket from today’s $ 12 billion industry to a $ 146 billion industry adopted by end users by 2030.
Desktop Metal believes that its single-pass jetting technology can deliver 10 to 100 times the throughput of traditional binder jetting solutions and over 100 times the performance of traditional powder-based fusion technology. In addition to metal applications, Desktop Metal has also expanded its tool arsenal this year. In February, the company acquired the top elastomer 3D printer EnvisionTEC. Like Desktop Metal, Envision promises to be over 100 times the speed of legacy solutions for 190 types of different polymers. Desktop Metal further consolidated its plastics offering with the acquisition of Adaptive 3D in early May. The company believes it makes the highest quality elastomers in the world. With many large manufacturers likely to require both metal and plastic parts, the cross-selling potential could be significant.
But Desktop Metal is innovating in-house too, recently unveiling a new printer called Forust that can 3D print pieces of wood from cellulose and sawdust, providing a sustainable manufacturing solution in a $ 1.3 trillion market for finished wood products.
Like Ouster, Desktop Metal has minimal first-quarter sales today, at just $ 11.3 million. However, that’s likely because the company’s signature additive manufacturing product, the P-50, won’t begin commercial shipping until the latter half of this year. With the P-50 deployed and with more contributions coming from new acquisitions and products, sales should hit an annual run rate of $ 160 million by the end of this year.
Desktop Metal may not look cheap today with a current market cap of $ 3.37 billion. That number is a whopping 62% lower than it was in February, however. Management expects a double-digit market share in this large future 3D printing market. If so, investing in desktop metal could pay off in the next decade.
Romeo Power’s batteries power the next generation of heavy-duty trucks
While much attention has been paid to the spate of electric vehicle manufacturers going public via SPAC, one electric vehicle-related company has come under the radar of many investors: Romeo Power.
Unlike most other EV-related SPACs, Romeo doesn’t produce an entire vehicle or an entire powertrain. Rather, it focuses on the most important component of electric vehicles: the battery. With top engineers like TeslaRomeo, SpaceX, and other top tech companies offer battery technology with the highest gravimetric density in the industry. This means that the configurable battery pack technology offers the best for the wallet, which is of great importance to Romeo’s target customers: the manufacturers of heavy-duty trucks. Most truck manufacturers and fleet owners have committed to electrifying their fleets over the next ten years. Hence, Romeo’s chance matters.
Why did Romeo Power’s stock drop an impressive 80% from its December high shortly after it went public via a SPAC? Chalk up a shortage of battery cells in the industry. Romeo manufactures its packs with third-party cells. Given the well-known shortage of semiconductors and the overwhelming demand for electric vehicles, there is currently a great shortage of high quality cells. This forced Romeo to cut its 2021 revenue targets from $ 140 million at the time of the SPAC to just $ 18-40 million.
The current shortage, however, has nothing to do with the technology or the company’s long-term opportunities. In the meantime, Romeo recently signed a long-term battery contract with Paccarto supply battery packs for the 579EV and Peterbilt 520EV garbage trucks. These two models alone account for 10% of the global Class 8 truck market. This agreement is a big deal, and CEO Lionel Selwood Jr. said he was “very confident” that the company will announce further long-term manufacturing agreements this year will give.
With a market cap of just $ 1 billion, which is below the SPAC price, and cash on hand at $ 287.5 million, Romeo sure looks like cheap stock if it delivers on the promise of its technology and those long-term agreements can convert profits into sales and revenue.
This article reflects the opinion of the author who may disagree with the “official” referral position of a Motley Fool Premium Consulting Service. We are colorful! Questioning an investment thesis – including one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.