whoknows tma

The Long Case for Capstone Turbine

September 26, 2008 - unfortunately for the longs, my prediction one month ago is coming true -- the stock just hit $1.17 and looks like there is more down. Be careful.

The Long Case for Capstone Turbine

As a follow-up to the incremental revenue argument, compare 2006, 2007, and 2008. Revenue dropped from 06 to 07 by $5M, and the operating loss decreased by $10M. But from 07 to 08, revenue increased by $10M and the loss stayed flat at $39M annually. The idea that this company has a track record that supports the claim that increased revenue will result in a corresponding decrease in operating losses is questionable, and since it has only $50M in equity left and is losing $9M per quarter, even if it is true does it have the legs to get there?

The Long Case for Capstone Turbine

I have no agenda. I have no position in this stock, and have not had a position in CPST for many years. I looked at it as a long position, and I am simply cautioning anyone interested in this stock to look at its history and the financials. The number do not lie -- here they are from the etrade site:
Total Revenue
2004, 2005, 2006, 2007 2008
12,607 16,968 24,103 21,018 31,305
Total Operating Expense
61,446 58,088 73,323 60,034 69,633
Operating Income
(48,839) (41,120) (49,220) (39,016) (38,328)

Revenue almost tripled in 5 years, and they moved operating loss from $48 million to $38 million annually. This company currently has $50 million in total equity, (half of which is equipment and machinery so the real number is probably more like $25 million) so it is set to lose its entire net worth over the next 12 months. Order backlog is up, which indicates that its overhead structure is not as deep as the previous post implies (if it has a deep overhead structure capable of increasing revenue with minimal incremental overhead increases it should be able to keep up with orders, revenue should be up, and backlog down). Since it is increasing order backlog, it is clear that the argument that it has massive production capability without increasing incremental overhead is questionable. Look, if you want to buy the stock, buy it. It was $0.98 a share a year ago, it made it to $4.40 June of 08 and at $2.5 August 08 there is a chance that news of a large order, supplemental offering, borrowing relationship, etc., will send it up towards $5. But there is also a very realistic possibility that it will revist the sub-$1 price it was sporting in August of 2007, and it may go down from there. My point is that this is a very risky investment and anyone looking at a long position on this stock should seriously look at the numbers.

The Long Case for Capstone Turbine

Correction -- on the above post, I said the company loses $2 for every $1 of revenue -- I should have said that the company spends $2 for every $1 of revenue -- it spends $60M to produce $30M in revenue. It is losing about $9M per quarter, or about $36M per year, and that is about equal to its annual revenue.

The Long Case for Capstone Turbine

I would urge anyone seriously considering a purchase of cpst to read the financial statements. This company loses $2 for every $1 of revenue, it has lost $220,000,000 since 2004, lost $9M last quarter, and only has $50M in equity, half of which is machinery and equipment. It's current liabilities are $6M higher than last year, and its curret assets are down $21M. That is how the $40M in losses for 2007 were covered. It continues to sell stock and lose the stockholders money. It had 85M shares out in 2004- now 148M. Equity has dropped from $115M in 2004 to the current $50M -- I was put onto CPST by a friend, looked at the financials, and I am surprised that anyone would even consider buying this company. Personally, I would not buy it, and I urge anyone looking at a CPST investment to study the financials and ask yourself how this company is going to continue to lose money at this clip and stay alive -- you cannot lose $2 for every $1 of revenue and last long. Yes, the technology is attractive and probably a very good long term project, but if this company cannot keep finding stockholders to invest in supplemental public offerings so CPST has more cash to lose, it will cease to exist in the very near future.

Thornburg's a Huge Bargain After Monday's Crash

JPM has made a decision to liquidate the collateral while it still has value in excess of the debt. Right now, even at the reduced valuations, the reduced valued assets is still in excess of the JPM debt. The collateral was devalued, and as a result, the debt to equity ratio was lowered to the point that a margin call was made. However, JPM has substantial confidence in the long term value of the assets, and it figures if they liquidate now, they will buy the portfolios at substantially reduced prices and inherit the cash flow attached to the collateral. Basically, JPM is just squeezing TMA out, and taking all of its property for the $321 million or so in debt that it holds, and will wind up owning all of the TMA portfolio that TMA pledged for just the debt it is owed. I think blame, if anyone, should be on TMA who under stated the danger of these defaults and did not provide an accurate picture of its inability to meet margin calls. I still think it is a buy at the $1.5 range and hold to about $4. Good luck.

Thornburg's a Huge Bargain After Monday's Crash

Well, TMA is closing at $1.65. I bought some at $1.99, and more at $1.40, so I'm a bit up. I'm going to hold 4000 shares long and see what happens -- I re-read the current article that started this, and here are my thoughts:
1) The stock was trading over 25 and has lost 80% of its value in six months. When a stock tanks like this, forget about traditional valuation arguments. Something is clearly and fundamentally wrong. So the premise of the original article that we should try and value this stock based on any type of investment analysis is wrong.
2) The statement that it is worth noting that the stock was trading at $10 last month is meaningless. Forget the historical price of such a stock -- obviously, traders were buying and selling based on a lack of complete information.
3) We should all know that we do not operate with a full set of all financial information, so it is almost pointless for us to try and do our own independent analysis of such a stock (or any stock, for that matter). Who could know that it was going to face a margin call based on a devaluation of its assets?
4) As I stated earlier, when a stock plummets and loses this much of its equity, we are all just guessing on the bottom. If we choose to play this game, we must understand that we probably will not pick the very bottom and we probably will get a bit out of shape. So when everyone here was picking a bottom at $3.5 or $4, think about the people who are still in this stock at $12 (Jan 2008) or $25 (July 2007). If we are going to pick their bones, please don't cry when someone decides to try and pick ours.
5) The liklihood is that TMA will partially rebound. They can defend the margin call based on their claim that the assets are more valuable than JPM claims, and litigate the matter for awhile. If there is not an instant death, this stock will rebound. Now we're into picking the tops as to where to get out, and I am getting out at around $4.00. I suspect most of you who are in at around $4 will have a chance to get out over the next six weeks. If you are much above $4, probably not. Just my guess, but most of these have a reasonable bounce before they either plateau or tank, so I'm thinking a $4 exit is probably reasonable. Obviously, if there is a bankruptcy annoucement or even a hint, the stock will drop to fifty cents in a matter of minutes, so only buy this stock if you understand it is a complete gamble and the stock will fly up or down on the slighest rumor. Good luck.

Thornburg's a Huge Bargain After Monday's Crash

Well - at 12"00 est 1.4-1.41; look guys -- whenever we start bottom fishing and guessing bottoms, we have to know that it is guessing and not investing -- here is a stock that is trading at 10% of a recent price and you guys are analyzing it like it is an investment -- its not - once any stock takes a 75% or more hit on its value we're all just guessing where the bottom is -- bottom fishing is dangerous but it can be very profitable and I say the story is not yet told on this -- its trading now at 1.4 (12:00 est) -- look at Citigroup - last week all sorts of pundits were claiming a 25 bottom -- smart guys --and they were way off - Citi could see 15. guessing bottoms is dangerous, but I think TMA is worth a gamble at 1.4.

Thornburg's a Huge Bargain After Monday's Crash

At 7:51 it's crossing at $1.35. Hmmmm. Now $1.24 while I'm writing this. Very weak, all selling. Now $1.17. Wow. Complete meltdown. 7:53 end.

Thornburg's a Huge Bargain After Monday's Crash

It's crossing at $1.65 @7:40 a.m.

Thornburg's a Huge Bargain After Monday's Crash

7:23 a.m.: I bought some in the aftermarket yesterday at $1.99. I say it sells today for $2.75, bottom fishing and the average down guys will drive the price up -- but it will be under a buck before the end of the week. BTW - I bought some at $1.99, sold it at $2.14 ten minutes later, and bought it back at $1.99. But this is Vegas money -- 1-5000 shares, nothing more -- it is not investing and it is not for the retirement fund. Good luck. BTW-my guess is that MSFT will be at $31 by 3/31, and INTC will be at $23. MSFT is the buy right now, but on dips, not at the current price. $27.5-28. Buy some TMA today in the pre if you can get it at $2, but don't chase it. It'll trade huge volume today, and it will go to $5 if JPM announces they are backing off the liquidation, and we should be able to get out at 1.5-2 worst case, but don't hold it on Friday. Good luck.