I was born in November 1951, which meant that I was younger and smaller than most of my classmates all the way through grade school and I high school. I played football on the peanut squad during my Freshman year in high school because I was 115 pounds soaking wet and nobody under 125 could play with the big boys. I got used to thinking of myself as smaller and that self-image as the "small kid" carried all the way through graduation when I stood 6" 1' and tipped the scale at 185 pounds.
My self-image did not keep up with changing realities. I see the same thing happening today among Axion Power (AXPW) stockholders.
Most of my quarterly updates include a version of the following table that compares a variety of valuation metrics for the companies I track. The ones I focus on most intently when trying to evaluate the potential of different companies are Market Capitalization and Market Premium. I'll explain more after the table.
Market Capitalization is nothing more than the share price multiplied by the total number of outstanding shares. It's a measure of a public company's weight if you will. The importance isn't so much the absolute number as how that number stacks up against your peers.
Market Premium is the positive or negative difference between financial statement book value and Market capitalization. It's usually a good proxy for the value the market places on a company's technology, customer base and other intangible assets.
Based purely on the market capitalization metric, Valence Technologies (VLNC) is twice the company Axion is even though its stockholders are so far under water that they need pressure suits. The market premium associated with Valence's technology is $140 million.
Based purely on the market capitalization metric A123 Systems (AONE) is 5.5x the company Axion is even though their business is teetering on the brink and they just closed a $50 million debt round that will be perpetually convertible at an 18% discount to market no matter how low the market price goes. The market premium associated with A123's technology is only $34 million, but they've been having a tough time of late.
Based purely on the market capitalization metric Maxwell Technologies (NASDAQ:MXWL) is 5x the company and before their recent price collapse was 12x the company. The market premium currently associated with Maxwell's technology is $75 million.
The market premium associated with Axion's PbC technology is $17 million.
There is nobody in the storage sector with a customer or an application that can hold a candle to Axion's relationship with Norfolk Southern.
There is nobody in the storage sector that's ever had a potential customer like BMW stand up at an industry conference and tell the entire world "This is the kind of performance you need to deliver if you want our business over the long term."
There is nobody in the storage sector that's ever had a company like General Motors take second billing on a DOE grant application.
Axion may not have the financial statement bulk of an A123 or Maxwell, but it's head and shoulders above the crowd when it comes to technical merit, patent protection and first tier customers who wrapped their arms around the PbC technology before there was a PbC product.
It's also head and shoulders above the crowd when it comes to keeping its head down and its mouth shut while doing the work with an incredibly small burn rate. Take a hard look at the TTM earnings column.
Four years ago Axion was the scrawny Freshman that deserved to play ball on the peanut squad. A lot has changed since then but many of us still think we don't deserve better because market dynamics have been so hard on the stock price.
Take a good hard look at the peer group and figure out where you think Axion's market capitalization should be. Then divide that number by 113 million to calculate your target price. It's a fascinating exercise.
I apologize for sounding like one of the cheerleaders who never paid attention to me in high school because I believed myself too small for the football team, but it's about time somebody woke up and smelled the coffee.
Disclosure: I am long AXPW.