Ocean Power Technologies, Inc.: Riding A Wave That's About To Crash

| About: Ocean Power (OPTT)

Summary

Ocean Power Technologies makes buoys that harness wave action for power. They haven’t actually sold any.

Ocean Power Technologies is running out of cash, with very limited income prospects.

Ocean Power Technologies is diluting fast.

Insiders are selling.

Ocean Power Technologies is a strong sell.

Over the last week, Ocean Power Technologies, Inc. (NASDAQ:OPTT) has seen a gigantic surge in stock price and volume, from about $3 on essentially no volume to a high over $15 on twice the entire float of the stock. This euphoria is driven by some announcements that now, at long last, the company might be in a position to make some money. But the stock is already falling back to earth, ~$10 as I write, and it has further to fall. OPTT is a strong sell.

OPTT has no commercial product

Ocean Power Technologies makes buoys whose purpose is to harness wave power and turn it into electricity. It's a promising idea, but they haven't been able to make it commercially viable. The company was founded in 1997 and at least since 2012 has never turned a profit.

Until this year, the goal was to create a utility-scale network of buoys to feed the grid. That line of research has recently been abandoned in favor of making autonomous (i.e. not grid-connected) buoys that power things like wildlife tracking devices, mid-ocean weather instruments, naval submarine detectors, and so on. These buoys already exist, of course, but they are powered by solar or batteries. Ocean Power Technologies' hope is that it can be shown that their products are more efficient or lower maintenance.

The excitement around the stock centers around the announcement that the company has "deployed" their new autonomous buoy off the coast of New Jersey. But this is a testing or proof-of-concept deployment; it isn't bringing in any money.

What will bring in some money is licensing this buoy (once proven) to Mitsui Energy and Shipbuilding, a Japanese company with more than $7B in revenue last year. There appears to be a 6-month lease signed, contingent on the new buoy working as planned, beginning March 2017, for $975K. This is of course pocket change for Mitsui - they were involved in the utility-intended buoys too, and are just continuing their association with Ocean Power as a flyer that might work someday.

But this is the only business income on the horizon for Ocean Power Technologies, and it won't be soon enough or last them very long.

OPTT is running out of cash

Ocean Power Technologies had less than $6.8M in cash as of their most recent reporting, with a burn rate of ~$10M/year. On the last call they were confident that they would make it through the quarter ending in January, which is not an enormous vote of confidence.

So they are taking the only route open to them:

OPTT is diluting like mad

Ocean Power Technologies raised $1.6M in an offering in June, and they just announced another offering of unspecified size. This has tanked the stock price by about 25%.

OPTT is way overvalued

Normal valuation metrics mean nothing for a speculative company, but anyway: P/S > 28, P/B almost 7, negative earnings and even negative EBITDA as far back as you care to look. None of this counts the dilution from the upcoming offering.

Insider selling

If my tiny company was on the verge of great things, I would hold onto my penny stock, or maybe mortgage my house to buy more. Instead, in May, founder and CEO George Kirby sold 55,000 shares at $1.57. The stock is over $10 today.

Conclusion

Ocean Power Technologies, Inc. is one of those companies that promises much and never delivers. Running out of options, they pivoted this year to an entirely new business strategy. They still have no commercial product and I expect the turnaround to be too little, too late. The income on the horizon will only doubtfully keep them solvent for a year. It will certainly not justify the absurd ramp-up in the stock price recently, which is driven by momentum traders who will be gone as quickly as they arrived.

OPTT is a strong sell.

Disclosure: I/we 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.

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