David Lentz

Beacon Power: My Top Stock Pick for 2008

Penny stocks can frequently jump from 1 to 4 (and back again), simply based on internet hyping (like this, perhaps?).

Looking at BCON's financials (balance sheet, income statement, cash flow -- readily available from any/all of Google, Yahoo, the SEC, and the company web site), I see nothing that would lead me to believe they are poised to make the leap upward. Losses continue to increase, unabated, with no hint of a turn for the better.

Sure, flywheels are a nice technology for storing energy, and they might become a lot more popular if we get a huge tax incentive for people and businesses to shift to wind or solar power, or if the national power grid becomes increasingly unstable, and people/companies decide they must have more stable electric power.

Otherwise, their major use is as backup power in corporate UPS systems, and must compete against batteries in that area. Flywheel energy storage offers a more cost-effective alternative to batteries+diesel generators when the cost of diesel fuel becomes prohibitive. Given the low amount of diesel fuel consumed by the typical corporate UPS facility (as utility power mostly works), it seems unlikely that this will drive BCON sales through the roof, as batteries+diesel generators are a much cheaper alternative to BCON's products.

There are hints that utilities might move to solar or wind farms on a large scale, and might therefore be expected to be potential customers of BCON, storing wind energy from off-peak times for later use during peak demand periods.

Solar tends to produce peak output during peak energy consumption periods, so it is of lesser value, unless one gets nearly all of one's energy from solar. That occurs only in the case of households, so far as I can tell. And in case anyone has been living in a cave for the past year, housing is not experiencing any large inflows of capital these days.

Beacon: Powering Up

Casually rolling an eyeball across their financial data, it appears that revenues are going nowhere, and the company has and is sustaining itself by selling stock. This is a poor premise for an investor to buy into, especially in the challenging times we find ourselves in.

It could be that better times lie just over the horizon for BCON, and that a flood of windmill/solar-related sales will occur, or even that rising brownouts will spur sales in their products for use as UPS backup units in businesses.

But it could also be that the cost of their flywheel-based products is not now, and never will be competitive with diesel generators or batteries as backup devices, and that flywheels will simply not scale up in an economic manner to provide large scale storage of power from wind farms and overnight storage of solar energy.

If they had a refrigerator-sized unit that could be tucked into a typical garage or basement and could be used to store power from rooftop PV solar panels overnight (or better yet, for a week), and could be manufactured and sold at a price that made sense to be incorporated into individual home installations, then one might see a bright future for these sort of devices. But so far as I am able to determine, such devices cost about a hundredfold more than would be practical, especially when competing with battery technology.

BCON has a long way to go, and they may never get their heads above water.

I'll await the expectation of revenue to be fulfilled before diving in.