STEM - stevehemingway/trading GitHub Wiki

Blue Orca is Short Stem Inc. (NYSE: STEM)

STEM Inc. (“STEM” or the “Company”) is an energy storage systems provider that went public via SPAC in 2021.  Like many of its vintage, STEM has all the hallmarks of a failed SPAC: its COO quit, it wildly missed its near-term pre-SPAC revenue and profit projections, its auditor has repeatedly warned of deficient internal controls, it’s deeply unprofitable, and it hemorrhages cash. 
 
Yet STEM continues to trade at a high valuation on its claim that its special AI enabled software platform has a growing pipeline of high-margin, long duration, and recurring software revenues.  This is nonsense.   
 
Our extensive due diligence has uncovered that undisclosed to investors, STEM is financing its flagship customer to purchase energy storage systems from STEM.  Rather than a “big win” and proof that STEM could compete for big utility scale projects, we think STEM won its supposed flagship deal by surreptitiously paying for it. 
 
Why? Because we believe that STEM’s software business is a mirage, and that STEM is misleading investors by disguising service revenues from leasing hardware as software revenues.  Apart from a busted recent acquisition, almost all of STEM’s purported software revenues are derived from STEM’s misleading categorization of system leases as ‘software’ revenues.  Worse still, 87% of these leased energy storage systems are not even owned by STEM, but by unconsolidated special purpose vehicles.  In reality, STEM’s purportedly special software business generates a tiny fraction of the revenue claimed by the Company.  We think this explains STEM’s audit warnings over revenue recognition and the strange internal control and accounting deficiencies revealed in STEM’s SEC filings. 
 
The remaining portion of STEM’s purported “software” revenues are derived from the early 2022 acquisition of AlsoEnergy, which appears to be a bust after only a few months.  STEM grossly overpaid for the deal, and in its latest quarterly earnings call, STEM warned that AlsoEnergy’s revenues were shrinking and that its solar AUM had declined 22% in Q3 2022 alone. 
 
STEM has very little cushion.  We calculate that without STEM massively stretching its payables, STEM’s operating cash flows would have been negative $170 million in the last 12 months ending Q3 2022!
 
Rather than trade as a burgeoning software business at 3x revenues, we believe that the market will come to value STEM as a low-margin hardware reseller and systems integrator which is uninvestable on account of undisclosed customer financing, accounting red flags, and misleading claims regarding its software revenues.  Ultimately, we think that STEM’s only real talent lies in raising money from the capital markets and selling stock. https://mailchi.mp/8d8522466bfd/blue-orca-is-short-sy-nasdaq-389249?e=a4ca2830bd