Why I Am Long Active Power 40 comments
August 11, 2009
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This morning I awoke to a comment from Seeking Alpha contributor Michael Eisenberg who asked me to lay out my core thesis on why Active Power, Inc. (ACPW) merits attention from investors who are interested in the energy storage sector. While Altenergystocks and Seeking Alpha don't generally like to publish articles about companies that trade for under a dollar, I believe Active Power merits an exception to the general policies.
As regular readers know, I've been a small company securities lawyer for almost 30 years and immersed in the energy storage sector since early 2004. During my career I've had many clients in diverse industries succeed and fail. While their businesses have all been quite different, they invariably go through the same stages of initial excitement over a novel idea, disenchantment as the business model proves difficult and costly to implement, and sustained growth when diligent pursuit of the business model begins to bear fruit. In many ways the life cycle of a small company is like a marriage that begins with an overly optimistic honeymoon, gets rocky for a period of years as the reality of paychecks and budgets sinks in, and then strengthens over time to become something valuable and enduring.
My favorite example of a typical small company growth cycle is J2 Global Communications (JCOM), a company that I got to know first as a customer and then as a stockholder. J2 went public in July 1999 at an IPO price of $9.50 per share (market capitalization $312 million) and its stock price immediately began a gradual downhill slide to a low in the $0.30 range (market capitalization $16 million). While the market obviously hated the stock, I loved the service, believed J2 had a bright future and bought its stock in the $0.50 range. After living through the indignity of a reverse split, J2's stock price recovered nicely and I ended up selling for a triple in late 2002, which proved to be dreadfully premature. The full trading history of J2 is summarized in the following graph.
I began researching Active Power last fall because they manufacture and sell uninterruptible power supplies based on a flywheel technology that's similar to what Beacon Power (BCON) is developing for grid-based applications. While Active Power's focus is data centers and other facilities that need extraordinary power quality and reliability, its solutions should be easy to scale up as demand for grid-based systems develops.
As regular readers know, I've been a small company securities lawyer for almost 30 years and immersed in the energy storage sector since early 2004. During my career I've had many clients in diverse industries succeed and fail. While their businesses have all been quite different, they invariably go through the same stages of initial excitement over a novel idea, disenchantment as the business model proves difficult and costly to implement, and sustained growth when diligent pursuit of the business model begins to bear fruit. In many ways the life cycle of a small company is like a marriage that begins with an overly optimistic honeymoon, gets rocky for a period of years as the reality of paychecks and budgets sinks in, and then strengthens over time to become something valuable and enduring.
My favorite example of a typical small company growth cycle is J2 Global Communications (JCOM), a company that I got to know first as a customer and then as a stockholder. J2 went public in July 1999 at an IPO price of $9.50 per share (market capitalization $312 million) and its stock price immediately began a gradual downhill slide to a low in the $0.30 range (market capitalization $16 million). While the market obviously hated the stock, I loved the service, believed J2 had a bright future and bought its stock in the $0.50 range. After living through the indignity of a reverse split, J2's stock price recovered nicely and I ended up selling for a triple in late 2002, which proved to be dreadfully premature. The full trading history of J2 is summarized in the following graph.
I began researching Active Power last fall because they manufacture and sell uninterruptible power supplies based on a flywheel technology that's similar to what Beacon Power (BCON) is developing for grid-based applications. While Active Power's focus is data centers and other facilities that need extraordinary power quality and reliability, its solutions should be easy to scale up as demand for grid-based systems develops.
When I first began comparing the two companies, Beacon was sporting a market capitalization of $80 million and Active Power was limping along with a market capitalization of just $24 million. When it came to business fundamentals, however, Active Power had a comparable product, comparable stockholders equity, smaller operating losses and a far more impressive business history. That led me to the inescapable conclusion that Active Power had attractive upside potential while Beacon had worrisome downside risk.
Active Power went public in August 2000 in an IPO price of $17 per share (market capitalization $640 million) and after an initial run-up; its stock price began to tank. The price ultimately decayed to the point that even after a reverse split it traded as low as $0.22 per share last winter. The full trading history of Active Power is summarized in the following chart.
While Active Power's stock price chart tells a tale of unmitigated disaster, the selected financial data from its last Form 10-K tells an entirely different story; a story of sustained growth, improving margins and declining losses (click on figure for a larger view). In other words a management team that’s had the courage to stay the course even when times got tough is successfully implementing their business plan.
During the first six months of 2009, Active Power booked a 24% year on year sales growth and improved its gross profit margin from 12% to 26%. In my view these are solid performance metrics for a small company in recessionary times.
I bought Active Power in the fourth quarter of last year at $0.26 per share because I saw the same long-term pattern developing that I experienced with J2. So far the investment has been very good for me and its market value has increased by 185% in eight months. Since I believe Active Power is turning an important corner in its business development and I'm convinced that overall growth in the energy storage sector will be spectacular for decades, I won't be anywhere near as quick on the trigger as I was with J2. I may even buy a little more.
DISCLOSURE: The Author is long Active Power
Active Power went public in August 2000 in an IPO price of $17 per share (market capitalization $640 million) and after an initial run-up; its stock price began to tank. The price ultimately decayed to the point that even after a reverse split it traded as low as $0.22 per share last winter. The full trading history of Active Power is summarized in the following chart.
While Active Power's stock price chart tells a tale of unmitigated disaster, the selected financial data from its last Form 10-K tells an entirely different story; a story of sustained growth, improving margins and declining losses (click on figure for a larger view). In other words a management team that’s had the courage to stay the course even when times got tough is successfully implementing their business plan.
During the first six months of 2009, Active Power booked a 24% year on year sales growth and improved its gross profit margin from 12% to 26%. In my view these are solid performance metrics for a small company in recessionary times.
I bought Active Power in the fourth quarter of last year at $0.26 per share because I saw the same long-term pattern developing that I experienced with J2. So far the investment has been very good for me and its market value has increased by 185% in eight months. Since I believe Active Power is turning an important corner in its business development and I'm convinced that overall growth in the energy storage sector will be spectacular for decades, I won't be anywhere near as quick on the trigger as I was with J2. I may even buy a little more.
DISCLOSURE: The Author is long Active Power
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-~$2000 for one battery
-Can hold a 20KW charge, enough to power an average home for a day.
-Runs at less than 200 degrees.
-Thin ceramic membranes act as a cooling agent (that's the really "cool" part of this ingenious technology! Da dump.)
-The ions pass through the ceramics, leaving behind the electrons.
-Allows capture of electricity during off peak times.
The curious part about this battery company, as the article points out, is that the battery will not undergo labratory testing until 2011. Why not now?
Another negative is that the average solar thermal cooling system operates only at 190 degrees. So there would need to be a better chiller to transfer the heat, or there would have to be some mini boiler or some kind of kinetic steamer inorder for the battery to operate more efficiently. It could be that a matrix of batteries could also be used on larger homes--my idea, there.
But here you have it--the more the better, as you say--that this battery operates about 400 degrees cooler than other sodium batt technology, well, I call that aspect BIG in my book! It's a pure play, too.
Mayascribe, I hope you'll forgive me but I'm a bit skeptical about reports that a start-up can make NaS batteries for $100 per kWh when the Sandia SEGIS-ES report that I've cited frequently in other articles pegs the current price of NaS at $450 per kWh and the 10-year projection at $350 per kWh. I hope they can do what the reports claim.
the only saving grace of the markets is that the markets always are and always will be forgiving to any company that can post profits tomorrow -- their past history will only allow early investors to get far cheaper shares.
China appears to embarking on a 50 year mission to improve / upgrade / increase power via solar / wind / fossil.
I think the main thing to take from John's articles is -- this SPACE is a winner, even if perhaps ACPW isn't the mouse that gets the cheese. So I just buy a little bit of everything - but concentrate in the right sector and you're already won half the battle.
--As Jack Lifton hilariously exposed Popular Mechanics for their mistakes about the Buick version of the Volt, I wonder if he is going to once again jump on their case.
Sometimes, less said, best said. So that's why I left that part out.
Great market day, today! I saw some short term negative indicators starting last Thurday and started easing out of the market, pulled a lot more out on Friday and Monday, and even more yesterday at the opening bell. I plowed right back in today at the bell and for the most part, missed the little dip entirely. Seldom do I ever buy before 10:45 in the morning, but today seemed the right day to break that rule.
Seems you may be right about Axion, holding steady at $1.68 last I checked. Still think it will drop a little more from here. I might start buying back in around the $1.50 level. Right now, nobody is buying and nobody is selling. That might be a good thing.
do you have a Twitter account. (you should)
can you comment on HPJ again -- looks very very cheap down here. I know you mentioned it once in an old column ('cautious'). Well, at current prices, wondering if perhaps it was worth another look.
Any tips about the health sector. I'm in on Seqenom (SQNM), Arena Pharm (ARNA). Novavax (NVAX) and SonfoiAventis are my H1N1 plays. Any Ideas? If you want to know what's up with ARNA and SQNM, I'll explain why I'm taking a shot on these companies.
If you have Twitter, you can DM --- my user name is ari5000. biotech is a whole different game since the outcomes are very binary.
What I own at the moment: ENDP, MDF, SMTS (for a swing) SEPR, VVUS (riskier!) -- best idea is health IT but I don't own QSII, ATHN, MDRX as the stocks are very very expensive. (please crash!) Twitterville is getting increasing nervous about a huge pullback so expect increase in overall volatility based on informal observation.
thanks,
On Aug 12 10:55 AM John Petersen wrote:
> Great summation ari5000. I'm convinced the storage sector will be
> huge and the upcoming IPO from A123 Systems will be a lot like the
> Netscape IPO in 1995, which launched the Internet financing boom.
> If I'm right about storage being the darling of Wall Street for
> the next couple years, every credible company in the sector is likely
> to benefit. I've spent a little over a year talking about the sector
> and the various technologies in an effort to help investors position
> their portfolios in advance. While I have a number of personal favorites
> and have explained why I like them, reasonable men can and do interpret
> the same information differently, which is why my articles consistently
> generate lengthy comment streams. My crystal ball is murky at best,
> but the next 12 to 24 months are looking like a lot of fun.
seekingalpha.com/artic...
The link to an archive page that will take you to all my prior articles is:
seekingalpha.com/autho...
While you were talking about why you invested in acpw, you were
you were certainly talking about the positives without mentioning the negatives---like a real thin stock, that got to near .20 as I recall.
When I first bt some, the attraction was that they were one of the few in the space that was at a positive gross margin level---while others were selling their products for less than cost to mfgr.
This shd offer them a quicker avenue to net profit, but these guys are really slow for a small growth company in a hot green market.
I've been listening to the conference calls for years---they don't deliver. I'm not saying they overpromise, ut they just don't deliver.
Then, of course we are talking about a company who relies on on distributor for approx 45% of rev--not the best situation.
All in all--it's just not that rosy.........best, I.
This shd
On Aug 12 10:23 AM John Petersen wrote:
> Isadore, I suppose entry price has a lot to do with stockholder satisfaction
> levels, which is why I feel pretty good about my investment. At the
> same time I'd argue that flat through a deep recession looks an awful
> lot like up when compared to most. My goal with this article was
> to explain why I invested in ACPW. I would certainly encourage readers
> to do their own investigation before doing anything.
>
> Mayascribe, I hope you'll forgive me but I'm a bit skeptical about
> reports that a start-up can make NaS batteries for $100 per kWh when
> the Sandia SEGIS-ES report that I've cited frequently in other articles
> pegs the current price of NaS at $450 per kWh and the 10-year projection
> at $350 per kWh. I hope they can do what the reports claim.
Your comment that acpw growing at 30% in a recession is pretty good----is just poor thinking. This is a hot area. Capstone Turbine
CPST, just increased revenue by 87% (if I recall correctly).They are in the same sector as ACPW that just had a terrible flat quarter.
You properly compare companies against their peers (as close as possible) to determine their success, or failure.
To compare ACPW to the overall economy is like comparing the
precious metals mutual fund to a large cap growth fund----it ain't
apples to apples .
ACPW shd be doing better and they are not, period.
Lastly, any investment success story is based on the time you have your cash invested. Anyone that bought this over the last--how many years is sucking wind and may never get even. The
management is masterful at destroying equity and anyone who
banked on the management team (what your suggesting) is underwater. Your fortunate timing success, excluded.
In other words, it could take them 5 years to break even, they have had several years at bat and are still woulda shoulda coulda.
The Board of Directors at the Austin social club aallow these guys to milk it with no time table--just like your buy and wait program.
Usually you buy a stock with a 12-18 month horizon. You anticipate
something happening that will prompt other investors to pay up.
Think of all the investors that this management team has buried
by not producing. THEY DO NOT DELIVER. The small progress is too slow. They are years and years without a profit, you can't change their spots, they do not produce. Give me one specific reason why they will suddenly come to life, instill a sense of urgency with the sales dept and succeed. Your comments
that the flywheel is complicated and has long sales cycles is
prevalent throughout the entire business sector---meaning if one company experiences an expanding sales cycle- most of them do.
THE AUSTIN SOCIAL CLUB SHOULD BE DEMOLISHED AND A
NEW BOARD AND MANAGEMENT TEAM WITH A SENSE OF URGENCY INSTALLED. Best,I.
performance of a precious metals fund to a
On Aug 18 12:14 AM John Petersen wrote:
> Isadore, like children small companies grow at their own rates and
> frequently our expectations lead to disappointment that's a bit out
> of place. Flywheel systems are very complex and have a long sales
> cycle to begin with. Right now, the numbers all seem to be heading
> in the right direction. So I'm more than happy to give ACPW the time
> it needs to continue implementing the plan.
Buying RTK at .50/share --- most traders would have said last week, was throwing your money away.
Now Twitterville loves this thing and are paying 3x more and projecting pie in the sky targets. Traders are happy to make a few grand... but it's the guys who loaded up at .50 and had a little patience that are laughing the most -- and undoubtedly unwinding into the momo crowd.