Investing in businesses that rely on unconventional energy is a risky business. Most of the time, it's like throwing money in a black hole, as so many technologies and their companies have failed to produce viable, sustainable results, many of them going bankrupt or heading there. KiOR (KIOR) is one of the latest examples of a failing alternative energy related stock, having a terrible earnings report, missing by a mile. It is no surprise that class action lawyers are circling overhead in en masse, looking to pick apart at the carcass. The safer and better bet, when it comes to investing in alternative energy related stocks, is to wait until they are either cash flow positive or close to it. Below is a list of 3 stocks forecasting cash flow positive results in the short term.
1. SolarCity (SCTY)
SolarCity provides renewable electricity directly to homeowners, businesses and government organizations for less than they spend on utility bills through the use of company-owned solar panels. SolarCity gives customers control of their energy costs to protect them from rising rates by locking in energy prices up front while shifting the burden of large capital investment away from the customer. In exchange, SolarCity maintains ownership of the solar panels and creates for itself a predictable, perpetual cash flow stream from each customer.
The predictable cash flow model allows SolarCity to have clearer, more predictable vision into its future cash flow results. The cash flow positive forecast wasn't emphasized much in the earnings press release or conference call, so many investors may have missed it and/or it's significance. From the press release:
the Company continues to expect to turn consistently net cash flow positive on a go-forward basis by Q4 2013.
From the conference call:
For 2013, we spoke to, we are very confident about 270 MW and we feel confident that we'll be cash flow positive in Q4 and maintain cash flow positive rates.
2. FuelCell Energy (FCEL)
FuelCell Energy designs, manufactures, sells, installs, operates, and services stationary fuel cell power plants for distributed baseload power generation. FuelCell continues its march toward profitability and is getting close, as I outlined in my recent article.
FuelCell Energy didn't mention or even hint at anything related to profitability to cash flow in its earnings release. However, late in the conference call, thishad a mention along with additional clues. FuelCell refers to its cash flow as EBITDA:
We are well positioned for continued global growth and to achieve profitability on an EBITDA basis, with annual production volumes of approximately 80 megawatts.
FuelCell last reported operating at 70 megawatts, so only a 14% increase is needed to reach its EBITDA profitable target of production.
Based on committed production volume and projected order flow from our pipeline, we anticipate continuing to produce at 70 megawatts and will increase production further as backlog and lead times support.
Backlog is at $381 million as of July 31 compared to last quarter sales of $53.7 million. Yes, I'd say backlog supports further production increases.
Margins will continue to expand as volume grows, contributing directly to profitability in a number of ways. Growing volume generates higher margins through greater supply chain leverage and improved absorption of fixed overhead. A product mix containing a higher percentage of complete power plants versus fuel cell kits also contributes to higher margins, which we demonstrated this past quarter. Based on process improvements, cycle time reductions and improved production flow, we increased our North American annual capacity of our Torrington facility to 100 megawatts from the previously stated capacity of 90 megawatts. This increase in capacity was accomplished without any material capital investments.
Things could get very interesting for FuelCell Energy if it achieves its stated goals and shocks shareholders who weren't paying enough attention.
3. Tesla Motors (TSLA)
Tesla is not a producer of alternative energy, per se, but it is popular among alternative energy investors because its vehicles use electricity as a cheaper, cleaner alternative instead to petroleum gasoline. Just like SolarCity, Tesla only humbly, briefly, and almost discreetly mentioned its cash flow positive forecast in its earnings release:
Going forward, we expect to be non-GAAP profitable and generate positive cash flow from operations every quarter this year excluding any benefit from ZEV credits.
In the conference call presentation, it wasn't until knee-deep into the call during the Q&A session that the topic of cash flow came up, almost forcing somebody at Tesla to answer:
John Lovallo - Bank of America/Merrill Lynch
Okay. That's helpful. Then if we think about cash flow for a minute, I think if you look at just free cash flow was a use of about $79 million in the quarter. I think if you make the adjustments that you guys had talked about I think $11 million for the DoE payments was of $67 million increase in receivables that may not occur. Is that looks like about used per $1 million. Now, you have CapEx ramping up in the back half of the year, so how are you thinking about just kind of free cash flow generation through the remainder of the year and into 2014?
Deepak Ahuja - Chief Financial Officer
As we said in the shareholder letter that we clearly intend to cash flow from operations. And you are right in pointing out that some of that will be offset by our capital expenditures and we want to be very careful about burning cash. We want to be sure we are close as possible to a free cash flow position, but that's something that we don't want to necessarily guide to how we are going to manage it, but we are going to be still judicious and spend the CapEx where we need to in order to make sure that we are growing at the right pace.
To me lack of emphasis on Tesla's cash flow statements in its presentations means the street is more likely to be positively surprised if Tesla achieves its cash flow goals.
I would watch for these and other alternative energy stocks to successfully produce the cash flow positive results they forecast. Turning the corner to cash flow positive for an alternative energy company is a game changer, as it means it has beaten the odds, and further growth generally means higher value for shareholders. Since this is such a tough sector to be successful in, those companies that are successful tend to reward shareholders without exceptionally high multiples.