Energy

Is American Superconductor the Next Big Alternative Energy Winner?

If you are an active trader or an investor in renewable energy stocks, the move seen in fuel cell stocks and other alternative energy and renewable energy stocks has been nothing short of amazing. Now we are getting another wave, after having seen a previous solar run and more recently a fuel cell run. American Superconductor Corp. (NASDAQ: AMSC) has only just recently started getting more investor interest.

24/7 Wall St. would note to readers that fuel cell stocks have finally started selling off after exponential gains after a Citron report warns of very excessive valuations. We also questioned some of the parabolic gains just on Monday. Still, the appetite for alternative energy stocks remains large, and many of the gains may continue to be supported by the bull market — let alone high fossil fuel costs and more competitive alternative energy costs.

For those of you who do not know AMSC, you must know that this company is almost certainly among the riskier alternative energy players. The company was crushed when its partnership in China imploded back in 2011, and the interest seems to be only recently coming back when other alternative energy stocks have been surging.

American Superconductor sued Sinovel, and two of the four portions of the case are still awaiting final decisions in higher courts in China. This implosion in 2011 was so bad that it made AMSC among our worst performing stocks of 2011. What is interesting is that AMSC’s larger cases could potentially disappear if Sinovel decides to (or is forced to) play nice again. Is it possible that China may start to play nice on intellectual property? Maybe — see China’s war on pollution, covered by Reuters.

So, let’s just say that, at least for now, that was then (2011) and tomorrow is almost now (2014 to 2016). American Superconductor could be on its way back — and perhaps with a big upside catalyst in China. Again, this is no certain outcome. However, it could be the next alternative and renewable energy high-flyer with parabolic gains, if things go in its favor.

Any day you see a mystery gain of 10% or more, you have to wonder. What seems to be happening is that the alternative energy laggards are just now coming into play. And AMSC is definitely one of the laggards here — prior to Tuesday’s gain this stock was at $2.18, up “only” 59% from its 52-week low of $1.37. Yes, that says “only 59%” because the gains elsewhere have been much higher.

Many alternative energy players have gone parabolic (tickers like FCEL, PLUG, BLDP to name a few) since the start of 2013. Solar’s big run was in 2013, so this may be the third wave of runs in a sector.

American Superconductor remains a shadow of its former self. To prove a point, last year’s sales were $87.4 million, down from $286 million two years earlier. If AMSC gets its grid business back on track and/or if China comes back as a key player, then AMSC could fly. AMSC shares were up above $30 throughout 2010 and for the start of 2011. Those shares are closer to $2 now.

AMSC reported in early February that its quarterly loss fell to $8.4 million from $201.0 million the prior year, while revenues for the quarter rose by 18% from the prior year’s quarter to $20.6 million. Its sales growth was due to its wind segment, and AMSC even highlighted India and China customer orders. The strength in its wind orders was partially offset by lower grid segment revenues — something that seems unlikely to remain weak in the years ahead.

AMSC also said that its cash and cash equivalents had risen to $41.7 million at the end of 2013, in part from a $10 million term loan and $3.3 million raised from an at-the-market equity financing.

What investors have to understand about the prospects here is that management continues to remain very cautious for the near-term. CEO Daniel McGahn talked up the long-term prospects, talked up the cost cuts and improving cash burn rates, and even loosely projected being in a position of achieving positive net cash flows on a quarterly basis as soon as by the end of fiscal year 2014.

Still, McGahn warned that the company continues to anticipate challenges in the near term. He put the current quarter sales at $16 million in revenue, with an operating loss of less than $12 million. The company is projected to have $38 million in liquidity at the end of the coming quarter as well.

Also, AMSC appears to have settled its old shareholder suit. An investor also recently converted its convertible notes into some 6.627 million shares.

One of the obvious risks that 24/7 Wall St. would warn investors about is that any or all of these alternative energy companies could soon decide to raise additional capital. From a long-term view, that might even be very smart of management, even if that may cap some of the near-term excitement.

Another risk to be aware of is that many of the parabolic moves seen in alternative energy have some of the same hallmarks of moves seen back in 2007 and 2008. The difference this time is that alternative and renewable energy is getting cheaper and cheaper — and more competitive — at the same time that getting new oil and gas is more expensive.

AMSC has two units that investors can focus on from time to time. Both almost feel like potential call options on future energy. The unit best known by investors is the Windtec unit, and the second is the Gridtec unit.

  • Windtec Solutions include a host of electronic controls and systems as well as wind turbine designs and engineering services.
  • Gridtec Solutions are a set of engineering planning services and advanced grid systems to optimize network reliability, efficiency and performance from generation through transmission and distribution.

AMSC shares were up as much 15% at one point on Tuesday, but the gain was 8% at $2.36 in early afternoon trading. AMSC has traded in a 52-week range of $1.37 to $3.06. Again, this $2 handle is still down well over 90% from the highs of 2010 and 2011.

Even after Tuesday’s gain, the company’s stock market capitalization rate is only about $163 million. AMSC even has put and call stock options for those who need to hedge or who only want to speculate with low-priced call options. That being said, isn’t a $2 stock close enough to an option already?

24/7 Wall St. did not include AMSC as one of its nine stocks that could double in 2014 because so many of the companies were already seeing their stocks going crazy. If any of the positive aspects highlighted here start coming to life, AMSC could be the exponential gainer in trading circles.

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