Ocean Power Technologies (NASDAQ:OPTT) has been a disaster for long-term investors. Anyone unfortunate to have owned OPTT stock over the long haul has ended up lost at sea. OPTT stock has plummeted from (a reverse-split adjusted) $1,200 per share in 2011 to just $3 now.

That doesn’t stop OPTT stock from occasionally offering up sizzling trade opportunities, however. Last week, for example, OPTT stock jumped as much as 300%, reaching nearly $15, after it announced a contract to “provide services” to an unnamed “leading offshore oil and gas operator.” OPTT indicated that, under the deal, it would provide “autonomous surveillance and monitoring,” as well as a “recharging system,” for “underwater vehicles.”

The gains would be short-lived though. OPTT stock proceeded to drop 80% from its high to just $3 following its secondary stock offering. What’s going on here, and what does the future hold for Ocean Power Technologies stock?

Ocean Power: An Interesting Idea

Ocean Power seeks to create a very cool business: generating electricity from ocean waves. In the company’s latest annual report, it claims to be the world leader in “ocean wave power conversion technology.” The company suggests that its PowerBuoy product will be able to convert the energy in ocean waves into electricity.

The company is targeting remote offshore users who don’t have easy access to conventional electricity sources. Ocean Power Technologies was founded in 1984 and has been testing its PowerBuoy technology in the seas since 1997.

But OPTT’s business hasn’t been  successful. The majority of its revenues have come from government support rather than sales to the private sector. Despite many years of testing, the PowerBuoy has not yet established itself as a reliable, dependable product with a large customer base. Until that happens, OPTT stock can keep popping after periodic press releases about potential new customers. But it will take recurring sales to move OPTT from interesting science project to profitable business venture.

Ocean Power: A History Of Challenges

Since its founding, OPTT has racked up more than $200 million of debt.  That’s a huge number for a company with a market cap of just around $15 million, even after the latest offering of Ocean Power Technologies stock.

It’s not hard to see why Ocean Power has struggled over the years. Despite its lack of widely commercialized technology, OPTT doesn’t spend much on research and development. It spends just around $1.3 million per quarter  on engineering and product development costs.

Meanwhile, it spends significantly more than that on selling, general and administrative costs.   It’s hard to disrupt a competitive industry like energy when spending such a small amount of money on product development. Of course, sometimes David does beat Goliath. But investors should realize that  most of these tiny companies which generate almost no revenue are unlikely to win in the long run.

The Offering of OPTT Stock

Given Ocean Power’s long history of large,  consistent operating losses, it’s not surprising that OPTT decided to tap the capital markets for more cash. As of January 31, 2019, it had been down to $2.2 million of cash. OPTT tends to run through about that much over the course of an average quarter.

Thus, it was quite logical for the company to exploit the pop of OPTT stock by selling more shares. The $15 million in cash that the company raised will allow its operations to continue for at least another year. But what a price OPTT paid to get that money!

At the beginning of the year, OPTT stock was trading for around $6-$7. By last week, it had dipped to $5. On the contract news, Ocean Power Technologies  stock spiked as high as $16 and closed at almost $8 per share. That made it all the more shocking when Ocean Power announced its secondary offering had been made at a stunningly low price of $3.50 per share plus warrants.

The $3.50 price represented more than a 50% discount from where OPTT stock had closed the night before, and a nearly 30% discount to where it had been trading prior to the contract news. Throw in warrants, and the dilution is even more extreme. That was simply awful for shareholders, and shows the market’s fundamental distrust of Ocean Power’s technology. OPTT should have been able to price its stock offering a lot higher if institutional shareholders had felt the company’s prospects were more promising.

The Verdict on OPTT Stock

Ocean Power Technologies stock should be avoided by  most investors. The company has a long history of losing tons of money. Throw in a number of SEC investigations and shareholder lawsuits over the years, and it’s clear that most people should stay clear of the stock.

But highly speculative investors might be able to profitably trade OPTT . It is, after all, down to $3 now, well below the $3.50 secondary stock price offering. And the company does have a year or more of cash now to keep its operations going. Given its history, however, it seems likely that Ocean Power will need to sell more stock again in the future. That will dilute shares even more and send the stock price lower. For long-term investors, there are much better stocks to buy.

At the time of this writing, Ian Bezek held no positions in any of the aforementioned securities. You can reach him on Twitter at @irbezek.