American Superconductor Hits Micro

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 |  About: American Superconductor Corporation (AMSC)
by: Dana Blankenhorn

The big story for 2014 in renewable energy is storage.

Fossil fuel advocates are hammering the industry politically, claiming that wind and solar energy supplies are intermittent. Storage, which is encouraged by the Federal Energy Regulatory Commission (FERC), not only eliminates the problem but helps create microgrids around the storage systems that make the whole grid more resilient.

Few are positioned as well to play in this field as American Superconductor (NASDAQ:AMSC).

The company hit hard times a few years ago because a Chinese wind deal fell through. Whether the company was, in fact, robbed is a question that remains before courts.

But the real news here is that AMSC has moved beyond those problems, re-forming itself around power systems, allowing it to increase quarterly sales to over $20 million for the December quarter, and to cut its losses by more than half.

Still, the past hangs heavy over the stock. At $1.58/share, the present market cap is just $107.66 million, less than 5% of what it was during the company's 2010 heyday, when the company briefly traded at over $40/share.

The company's retrenchment has cut its debt load to 12% of its equity, and the stock is trading at just the level of its sales, which is low for a technology-based business. The retrenchment has cut the level of assets from $225 million to $172 million over the last year, but liabilities have been cut by a full third, and total debt by nearly one half, to $13.67 million in September.

The lower debt load positions it to refinance based on a new business model. It also makes the company a more attractive takeover candidate.

Meanwhile, the industry of which AMSC is a part is preparing for an unprecedented boom. Market research firm IHS says the amount of grid-connected back-up, which stood at 340 Mwatts at the end of last year, will explode over the next decade to over 40 Gwatts, mostly in the U.S. California has passed a statewide storage directive, New York is providing incentives, and federal rules encourage it, not only to help renewable suppliers but to make the grid more secure against attack, and to reduce fluctuations in power that can damage computer gear.

AMSC was originally formed around the idea of superconducting wire, and it's still in that business. Wires with less resistance can limit power losses as that power is transmitted over distance. The extra power pays for the wire, and reduces the need for new power plants.

AMSC is not in the battery business, and that's probably for the best. While lithium ion batteries are selling like hotcakes today, new battery designs based on organic compounds, carbon nanotubes, and other cheap materials could dramatically impact that part of the market.

Instead, AMSC is focused on the design of back-up systems, and in other areas that provide more technological stability. This, along with increased demand for systems dealing with all kinds of power supply, should give it a serious opportunity for growth and profit over the next several years. Good news on the legal front would simply be a bonus.

AMSC remains speculative, but while it once was a speculative sale, today it's a speculative buy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.