Ocean Power Technologies (NASDAQ:OPTT) has been around for a long time and has yet to take off as a solid commercial entity. OPTT stock has been on a roller coaster, mostly going down, over the past five years. There are signs now that management is getting serious about being a real commercial company. That could signal potential upside for the stock over the next several years.
Back in 2005, revenues peaked at $5.365 million (see page 43 of the 2007 10-K). But that was when the U.S. Navy was its main customer as an research and development grant provider. Revenue for the year ending April 2020 was just $1.68 million.
In 2015 the company decided to change its strategy and get serious about providing autonomous (non-grid) wave energy products. Now OPTT has contracts with energy companies like the green energy division of the Italian utility Enel SpA (OTCMKTS:ENLAY). Moreover, the company seems to be looking for ways to more broadly commercialize its ocean power solutions and products.
In the past five years, OPTT stock peaked at above $182 in 2016. Now it sells below $3 ($2.93 as of today). Recently, management astutely raised about $66.7 million in common stock and now has a cash balance of $79.8 million as of its fiscal Q3 end (Jan. 31, 2021).
Given that the company now has 50.985 million shares outstanding as of March 5, its market capitalization is $150 million. As a result, the $80 million in cash represents over half of OPTT’s market value.
This means that the market values the ocean power business valuation, after deducting the cash, at only $79.3 million. Is that a good value for this business?
This is hard to say. On the one hand, it is still bleeding cash, over $8.5 million in the past nine months to Jan. 31. On the other, management seems to be getting much more serious about generating revenue and keeping costs down. You can see this both from the narrative in its recent 10-K business description section as well as the recent Q3 earnings report.
For example, the company talks about reaching customers outside its normal industry sectors. This includes IUU (illegal, unreported, and unregulated) fishery. Here is how that works. You stick an OPTT Powerbuoy out on the edge of your EEZ (exclusive economic zone).
For example, Chile recently bought an OPTT Powerbuoy (see page 10 of the 10-K) to help them monitor Chinese fishing trawlers encroaching on their EEZ fishing areas. The 10-Q also discusses their turnkey wave energy-powered subsea data collection system in Chile.
In fact, this system was installed remotely from New Jersey using robotics on site. This will eventually allow the company to mass install Powerbuoys and other OPTT products, lowering its costs.
What to Do With OPTT Stock
Recently the company made an acquisition, increased its sales force and brought in several new directors. Hopefully, these actions will lead to an even keener focus on getting scale and moving into profitability. Right now, that is hard to predict.
The market’s implied valuation for the business is robust, at best. The problem is the company still has to get a large number of orders or solutions. They are not talking about this yet. Therefore, I suspect that the implied $70 million valuation for the non-cash portion of OPTT stock valuation is high.
However, if management is starting to get serious about actually generating revenue and profits, I believe that this valuation might be worthwhile. I like the fact that they made a decision in 2015 to focus on non-grid-tied products. They then made a decision to develop total solution products for ocean power, not just wave-related power generation. Now the company is moving into scale and cost reduction drives. If they are successful, the upside could be huge.
I invested in this stock a long time ago when it first went public (actually it was originally listed on the U.K. AIM exchange). I became disillusioned with its progress and left, especially as the stock soared but it could not produce reliable revenue. Now might be a good time to get back in for enterprising investors, especially as it has sufficient capital and a focus on scaling its commercial activities.
On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.