Composite Technology: Steep Valuation, But Very Promising

Composite Technology (CPTC.OB) has two promising product lines: wind turbines and improved power transmission lines. Both businesses operate in sectors that are certain to grow in coming years. If either business can gain traction, Composite Technology could easily be worth much more than today’s $400M market cap. But make no mistake — at this valuation, a lot of high hopes are already priced in. If the company suffers any setbacks, or even fails to see high growth, investors will get hurt.

Most investors are attracted to the company’s wind turbine business. Alternative energy is hot. But unlike solar, there are not many direct plays on wind energy. Composite Technology’s DeWind subsidiary is building a 2 megawatt demonstration unit in Texas and already has a prototype operating in Cuxhaven, Germany.

I personally find the power transmission business more compelling. The company has developed a special kind of power line [ACCC] that wraps an aluminum transmission wire around a composite core. This allows more robust wires, which in turn transmit electricity more efficiently. More importantly, because the composite core helps support the weight of the wire, fewer support spans are required. Think about how much that could lower the cost, for example, of spanning wires across rough terrain. CPTC is pushing this technology in China, and has had some success.

Bottom line: This isn’t a value stock. CPTC loses money, and is sure to continue to lose money until it can reach economies of scale. That said, if CPTC can hold its $1.70 near-term support, it could get interesting. If that support holds, the stock will form an ascending wedge near its 52-week high, a bullish pattern. I’m keeping this one on my watch list.

DISCLOSURE: No position.