The first quarter of 2012 was the best of times for shareholders of
companies that are developing and manufacturing cheap energy storage
products like lead-acid batteries, but the worst of times for
shareholders of pure-play lithium-ion battery developers. The
following table tracks stock price performance in the energy storage
and electric vehicle sectors for the first quarter of 2012 and for
the twelve months ended March 31st.
Long-term readers will notice that the current list is a good deal
shorter than it was in March of last year because of my decisions to
delete China Ritar Power ( href="http://www.altenergystocks.com/comm/content/china-ritar-powe/">CRTP.PK),
and Beacon Power ( href="http://www.altenergystocks.com/comm/content/beacon-power-corporation/">BCONQ.PK)
for reasons ranging from reporting deficiencies and changed business
models to outright business failures. It’s been a turbulent year.
a stock that investors either love – or love to hate. Tesla is
trading at a 119% premium to its $17 IPO price and one of the
market’s most heavily shorted stocks. Where sell side analysts see
upside potential to $49, more pragmatic types expect the price to
collapse into single digits. While experience tells me that
consensus among short sellers is usually right, only time will tell.
It was a solid quarter for several companies that were beaten down
over the last year but started to recover some of their long-term
price declines during the quarter. The lead-acid group in particular
is performing very well. The only group that was down for both the
year and the quarter were lithium-ion battery developers. That
group’s performance would have been even worse if I hadn’t culled
Ener1 after its public stockholders got flushed in a bankruptcy
The following summary table shows how the surviving companies in my
five tracking categories performed compared to broader market
My last table for the day provides a summary of some key financial
metrics I like to focus on when performing a high level
forward-looking analysis of the companies I track. The data is
stated in millions, derived from the most recent SEC reports filed
by the companies and adjusted for material events including
financing transactions and extraordinary losses reported after the
date of the most recent financial statements.
For companies with a history of losses, the first number I focus on
is working capital. If a company can’t cover expected losses for the
next year and make planned capital investments with available funds,
it will almost certainly be forced to seek new financing and that
can be tough in a turbulent capital market. This year, only three of
the companies I follow have clear working capital issues, a
significant improvement from last year. While I’ve been impressed
with its business development activities over the last year, I’m
less impressed with ZBB Energy’s ( href="http://www.altenergystocks.com/comm/content/zbb-energy/">ZBB)
financing activities, which have boosted its share count by 57%
while the balance sheet treads water.
A second key metric is the difference between a company’s market
capitalization and its book value, which is commonly referred to as
blue-sky. Public companies normally trade at a premium to their book
value because intangible assets like intellectual property, human
resources, industry experience, customer relationships and the like
usually have no balance sheet value. When the blue-sky premium is
inordinately high, it’s a bright red warning flag. When the blue-sky
premium is out of line on the low side, it can hint at significant
To simplify comparisons among companies I like to calculate the
ratio between blue-sky and book value. The result is a “BS to Book
Ratio” that can be quite illuminating.
The most alarming BS to Book ratios in my tracking group, in fact
the most alarming BS to Book Ratios I’ve ever seen, belong to
Valence Technologies ( href="http://www.altenergystocks.com/comm/content/valence-technologies/">VLNC)
and Tesla Motors. Valence has a $60 million deficit in stockholders
equity but it carries a market capitalization of $138 million, which
makes its BS to Book ratio infinite. Tesla is a little better since
it has $204 million in equity and $182 million in working capital,
but it’s sky-high market capitalization of $3.7 billion gives it BS
to Book Ratio of 16.4. To put things in perspective, Apple has a BS
to Book ratio of 5.2 and it’s become the most successful tech
company in history.
Companies with inordinately low BS to Book ratios include Exide
Technologies ( href="http://www.altenergystocks.com/comm/content/exide/">XIDE)
and A123 Systems ( href="http://www.altenergystocks.com/comm/content/a123/">AONE)
which both trade at a 40% discount to book value. If you adjust
A123′s book value to include $128 million of ARRA grant proceeds
that aren’t reflected on the face of its balance sheet, the discount
to book value is closer to 60%. While both companies have had more
than their fair share of problems over the last few quarters, I
continue to believe their market prices have fallen to very
attractive entry points.
I believe a BS to Book ratio of one is healthy for large established
manufacturers and that BS to Book ratios of up to four are
reasonable for transition stage companies that have completed their
principal product development and are focused on commercializing new
technologies. Enersys ( href="http://www.altenergystocks.com/comm/content/enersys/">ENS)
has had a strong run over the last two quarters but still has a way
to go before it achieves parity with Johnson Controls ( href="http://www.altenergystocks.com/comm/content/johnson-controls/">JCI).
Since Maxwell Technologies (
is currently sporting a BS to Book ratio at the top of the
reasonable range, I don’t look for it to outperform the market on a
go-forward basis. Active Power ( href="http://www.altenergystocks.com/comm/content/active-power/">ACPW),
on the other hand, seems to have significant upside potential if its
management can continue to execute. Baring unforeseen negative
developments, Axion Power International ( href="http://www.altenergystocks.com/comm/content/axion-power/">AXPW.OB)
should be an easy double as revenues continue to ramp and advanced
testing programs with a variety of first tier OEMs and battery users
mature into orders.
The energy storage sector occupies a unique position global industry
because it must prosper as
humanity changes the ways it produces and consumes energy. For those
who believe conservation of fossil fuels and waste minimization are
key elements of our energy future, batteries are essential. They’re
also essential to a future powered by intermittent power from the
wind and sun. No matter what you believe the path will be, the
future simply can’t happen without cost-effective energy storage.
It’s not just a desirable thing – it is an essential thing!
There aren’t any silver bullet technologies or killer apps in the
energy storage sector, but there are several emerging trends that
will create new multi-billion dollar markets over the next few
years. In that rapidly evolving environment, every company that can
offer a cost effective product will have more customer demand than
it can satisfy. As global demand for cost-effective energy storage
increases, so will margins and profitability.
Disclosure: Author is a
former director of Axion Power International ( href="http://www.altenergystocks.com/comm/content/axion-power/">AXPW.OB)
and holds a substantial long position in its common stock.