Whether you believe in Climate Change, Global Warming or any other excuse to cut carbon emissions, you can't deny the push for cleaner energy - and there is plenty of money to be made during this transition.
The truth is that this is a movement, and it doesn't matter how you classify it. Over 400,000 people took to the streets last Monday - and it wasn't because an innocent man was gunned down. It was to show that the U.S. is serious about Climate Change, and that we are going to make a difference.
It has been discussed for a while now, but our government is continuing to take actions to shift the energy industry, and other industries, towards greener, more environmental friendly operating standards. President Obama recently announced a new set of executive orders to battle climate change.
A shift of this magnitude is one that leaves plenty of profits to be had.
One of the top plays in the sector that will likely generate significant returns during this transformational shift is Blue Earth Inc. (NASDAQ: BBLU).
Blue Earth is leading the climate change push on multiple fronts. Basically the bread and butter of the company is using its proprietary energy efficient programs to help utility companies meet state-mandated energy reduction goals. But it is also expanding into a diverse and technology-driven to tap into other rapidly growing markets.
Considering the executive orders President Obama recently signed and the support of main stream America, that makes Blue Earth an extremely attractive company - but let's take a look at the details of how it operates.
The Fundamentals
The most commonly associated energy source with going green is solar, and this company has built and operates seven solar power facilities in California while it is permitting many more.
But, it also is seeing high demand for a combined heat and power (CHP) source of energy. Just to explain what this source of energy is it is essentially creating energy from a side effect to producing energy. See, in most cases, when you produce electricity from a power plant, there is what they call waste heat. Usually this waste heat just enters back into the atmosphere, but with CHP the company generates additional electricity with it.
So far, the company has only recognized revenues in segments energy efficiency and construction - this is about to change.
By the end of this year, the company believes it will be able to add a third revenue segment - power sales. This will be a CHP plant and is expected to open this quarter. It will be a significant milestone going forward not only because it is an additional revenue stream, but because it will set up lengthy and stable cash flows for the company. This way they do not have to rely as much on winning new contracts - which it has been doing generally well at thus far.
That's a great reason alone to jump into this stock, but there is so much more.
Considering it's a small-cap stock, most of them trade in the pink sheets with relatively low volume and little analyst coverage. In August, Blue Earth was uplisted to the Nasdaq stock exchange, which will likely help shares appreciate as trade volumes pick up and more analysts initiate coverage on this eco-friendly company.
The company recently announced a $10 million investment, of which is going to be from cash and stock, in a Nickel-Zinc battery maker company, PowerGenix. There is a major shift from the hazardous lead-acid batteries that are typically used to this environmentally friendly battery that has a longer life, more flexibility and less maintenance.
These batteries by PowerGenix have already become a common place in cars branded by Peugeot and Hella, but the automotive market is continuing to grow rapidly. But this investment was just as much about building relationships as it was to tapping into this growth market.
For Blue Earth it gives them exclusive marketing rights to use these proprietary batteries and make them "intelligent" by combining them with Blue Earth's UPStealth system.
And that's where Blue Earths main focus is for now. With its patent pending proprietary system, which utilizes PowerGenix batteries for everyday streetlights when the power goes out, enables them to brand this under its UPStealth system. You know how annoying it can be that every time a thunderstorm rolls through your town and you know that several lights on your street will be flashing or blacked out - this changes that. The company also has a finance program that allows cities to replace existing lights without capital expenditures.
This brings me to another fundamental reasoning for owning Blue Earth, its intangible assets - patents. The main rational behind big investments like the one I just mentioned or other acquisitions like the one of Intelligent Power in 2013, is for access or control to substantial patents.
The acquisition of Intelligent Power gave Blue Earth access to a patented demand response technology known as Peak Power System. This technology allows them to control refrigeration, lights and air in businesses like super markets, restaurants and discount stores. It is currently operating in several grocery stores but the company has stated it is planning for a major commercial rollout next year - and revenues are expected to surge.
It has also bolstered the company's asset portfolio with an additional $11 million worth of intangible asset value.
Speaking of the balance sheet…
The Numbers
When it all boils down, we want to know what earnings we can expect, and with that we turn to the financial statements.
Even though the company is operating at a slight loss, at negative $0.07 per share as of August, its financials are clearly improving. Revenue and gross profit each climbed more than 40% in the most recent quarter, and that was still below the company's expectations. The company noted that its "fourth quarter revenues are expected to be the highest revenue quarter by a substantial amount."
More importantly, is that the company plans to be profitable by the end of next year - and shares should react nicely to this change.
A few of those fundamental factors listed above are what will be driving the company towards profits in the coming years. But it is also these strides that have helped the company's revenue surge 100% since 2011.
On top of that, we already know 2015 is setting up to be another huge year for the company.
Another data point that stands out to me, aside from the strong growth, is that it has $0 in long-term debt and plenty of cash to cover its short-term obligations. That is a monster risk when it comes to investing in any type of stock, but especially small cap stocks. So that is a great sign. And even better is that it has the door open to a $10 million loan that it has not touched yet, other than for short-term loans. This could easily be tapped to capitalize on any promising growth opportunities that arise.
The company's net asset sky rocketed since last year, from roughly $1 million to more than $40 million - and it is all from its CHP plants that are under construction. Consider the magnitude of the assets related to it compared to the rest of the business, I believe we can see some significant cash flows generated from this next year.
All told, this stock is poised to improve its financial results as the company embraces its new revenue segment, power generation, as well as a major rollout of its Peak Power System next year.
It is hard to gauge the impact from these new services and implementations, but it does mean one thing for sure - and that's growth. For now, this movement is not one you want to be sidelined for.
The Trade
To me, the variability to its future earnings growth at the moment also represents a positive catalyst for the stock. I believe it allows the company to easily surprise to the upside due to lack of coverage and lack of clarity on how big the rollout is, as well as the type of power generation revenues to expect.
I could give you a technical rational based on the charts for the trade - it recently blew through a resistance it was fighting for nearly a month. But a small-cap stock like this is more likely to trade relative to fundamentals and earnings announcements than anything.
At a current valuation of just 2.8 times book value, shares are pretty cheap. It is great to find strong, small-cap stocks that fetch less than book value (less than 1 times) but that also may be a sign of a struggling company - like a Books-a-Million or RadioShack. But Blue Earth's book value is most likely set to rise looking out to the end of 2015 considering all of the investments the company has been making and several catalysts that will be playing out.
But, the main reason I would grab shares today is because of the fundamentals that are driving this industry.
Corporations will be getting pressure from the two most influential voices in the world - the U.S. government and the American people. That means we will see increasing amounts of utility companies seek out a company like Blue Earth to help them get under state-regulated standards. And if the company announces any additional acquisitions or patent solidification, these shares could easily pop to the upside.
Plus, many of its patents and technologies are applicable in a diverse group of atmospheres, such as oil wells, data centers, automobiles, etc.
Grabbing the stock under $3.75 a share will probably look like a steal in a few short years.
Just a quick note on the risk: When trading small-cap stocks it is prudent to follow them with a trailing-stop as the shares tend to be extremely volatile. The amount you would set your trailing stop at is based on your own risk tolerance.
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