What happened
Shares of ESS Tech (GWH 0.56%), a utility-scale electric battery storage company, rose dramatically on Dec. 23, gaining as much as 11% in morning trading. Roughly two hours into the day, it was still holding on to an advance of nearly 9%. The news that spurred the price movement, however, came out on Dec. 22, a day when the stock also rose. And it all ties back, at least loosely, to a news update from the company on Dec. 20. Here's the background.
So what
The share price gains over the last two days are at least partly the result of a new analyst call on the stock. Baird initiated coverage of ESS Tech on Dec. 22 with an outperform rating and a $15-per-share price target. Investors tend to like this sort of thing. The stock, meanwhile, is still a little below that $15 target, even after a two-day rally, so there continues to be upside potential here, assuming you buy into the analyst's story. Which gets to the real issue here: ESS Tech's utility-scale iron flow batteries could offer a compelling alternative to batteries more likely to catch fire, notably lithium-ion batteries.
Image source: Getty Images.
Which brings us to the Dec. 20 news announcement that ESS Tech is working with San Diego Gas & Electric on the installation of a grid-supporting battery array in the town of Cameron Corners. It will be located on the site of a solar array and help to supply power to critical community service locations, like the fire station. The simple story is that ESS Tech's battery systems will help to ensure continuous power from a solar array that is, by nature, an intermittent electricity source. But there's a deeper story here, because part of the reason that ESS Tech's technology was selected is likely that it doesn't pose the same fire risk as alternative systems. Although Baird noted there are still a number of uncertainties here, including on the manufacturing and execution side, the Wall Street firm believes ESS Tech can differentiate itself and find a prominent place in the electric grid because of the reduced fire risk.
Now what
ESS Tech seems to have a pretty good story, and investors appear to be latching on to the potential here thanks to a number of news items hitting this week. That said, the company is bleeding red ink right now, which isn't surprising given that the utility-level battery market is still pretty new. However, the steep losses suggest that the story is the real selling point right now. That means conservative investors should probably stay on the sidelines (perhaps even waiting for sustained profitability) while more aggressive types should dig in and do a deep dive before following the crowd into the stock today. Yes, the concept is very exciting, but you need to make sure you understand what you are getting into and, perhaps more important, the timeline for the battery technology's potential adoption.
