by Will Ashworth | March 3, 2014 2:35 pm
Green energy stocks are a lot like biotech stocks — one minute they’re losing boatloads of money, the next moment some kind of breakthrough happens and the stock pops zooming into the stratosphere.
Finding quality green energy stocks can be like searching for a needle in a haystack. It’s a difficult task … but not impossible. With that in mind, I’ve identified three micro- and small-cap green energy stocks I believe have “pop-ability.”
Just remember that like biotech stocks, these tiny companies bring greater than average risk — but also reward.
Any time a small publicly traded company gets an order from the world’s biggest retailer, investors tend to take notice. Plug Power (PLUG) announced Feb. 26 that it has received an order from Walmart (WMT) to deploy a total of 1,738 of its GenDrive fuel cell units over the next two years. PLUG stock is up nearly 50% in three days of trading through Feb. 28 on the news and subsequent analyst upgrades.
CEO Andy Marsh said this about Walmart’s order:
“This agreement is a tripling of Walmart’s commitment to Plug Power’s feel cells, and is encouraging because it comes from a company with so much experience using our product.”
Currently, Walmart has 535 fuel cells in operation at two Canadian distribution facilities, as well as one in the U.S. In addition to providing the fuel cells for Walmart’s fork lifts, Plug Power has a six-year service contract to maintain the machines used to recharge the forklifts. This is a key benefit because it provides recurring revenue — something the green energy stock lacked in the past.
In its Q3 earnings announcement, Plug Power’s CEO indicated that orders from companies like Walmart should help it reach breakeven for EBITDAS (the S stands for stock compensation) in fiscal 2014. That’s not bad for a company whose EBITDAS in the first nine months of the year was $16 million in the red.
Plug Power reports Q4 results on March 13 before the opening bell. I’d be shocked if it delivered anything but good news. Despite PLUG’s impressive run-up, I’d say that if you’re interested in PLUG stock, I’d be buying before earnings are released.
Capstone Turbine (CPST) has had a rocky 25-year history, including almost 14 as a public company.
The California firm, which makes microturbine engines used to remotely convert waste heat into energy, went public June 29, 2000, to big fanfare. Capstone came public at $16 per share, raising $130 million for the company, and CPST stock closed its first day of trading at $47.98. It then reached a high of almost $95 by the end of summer.
And then the bottom fell out, as Capstone’s price sank below $1 in a little more than 24 months.
CPST stock is definitely not for widows and orphans.
However, recent events suggest this long suffering company could be ready to actually make money.
Capstone’s revenue in 1999 was $6.7 million with an operating loss of $5.8 million. Its fiscal 2013 revenue was $128 million (19 times more) and its operating loss in 2013 was $22 million (less than four times more). It all sounds awful until you consider that until 2012, CPST didn’t generate a gross profit. In February, Capstone generated a Q3 gross margin of 20%, 6 percentage points higher than a year earlier, barely missing breakeven for the quarter. That’s good news for CPST stock.
The beauty of Capstone’s microturbines is not only do they allow gas producers to convert their flare gas into energy, but they also can help keep plants operating when power cuts occur. This video shows how a Colombian producer of palm oil has reduced the number of annual power cuts from 32 to zero thanks to its C65 Capstone microturbine. The cost savings, not to mention productivity gains, are tremendous. The benefit to customers is obvious.
The game-changer for CPST stock is providing those machines at a profit. That should come in 2014.
Generating revenue from two business segments: Thin Films and Solar Energy. If Advanced Energy Industries (AEIS) could ever figure out how to generate consistent profits from its two businesses, AEIS stock would be well past $50. As it is, it’s still currently trading higher than it has since 2002.
The cause of its 45% move during the past 52 weeks has everything to do with its financial results. Its Q4 earnings were released in early February, and they were solid. The Thin Films segment saw revenues increase 64.4% year-over-year to $87.6 million and 16.2% on a sequential basis.
Its solar power segment, on the other hand, saw sequential growth decline by 4% to $64.9 million in Q4 2013. On a year-over-year basis, however, it was able to increase revenue by 8.9%, so all is not lost.
The glass-is-half-full opportunity comes farther down the income statement. Although AEIS’ solar energy power inverter business was able to generate $250 million in annual revenue in 2013, its operating profit was in fact a $3.8 million loss. Not to worry. The solar business is still in its infancy. Volatility is to be expected. As long as Advanced Energy Industries continues growing its solar business on the top line, long-term profitability will take care of itself.
On the thin film side of its business, you’re talking about the semiconductor industry == revenue cycles are the norm. Profits, although volatile, are generally available.
The company’s two businesses compliment each other very well. AEIS stock is a good three- to five-year hold with momentum currently on its side.
So, what if you only want to make a speculative buy? Which of the three should you target? Well…
Of the three, AEIS stock is clearly the safest. If you’re a risk-averse investor, this is where to put your money.
When it comes to the other two, they’re essentially competition. CPST and PLUG stock both provide alternative energy.
Which do you choose?
That’s a personal choice you’ll have to make based on which technology you believe has longer legs. Personally, I prefer PLUG stock over CPST stock because Walmart doesn’t usually buy into anything if it doesn’t think it will save a lot of money. Once those cost savings are demonstrable, it will trickle down to the rest of its business. At that point, Plug Power’s revenues will really heat up.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
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