Alternative Energy Storage: Cheap is Still Outperforming Cool

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John Petersen

The next couple months are shaping up as a time of extraordinary change in the energy storage sector. Events that will drive the change include:

So now seems like a good time to update the relative performance of the individual energy storage stocks I’ve been writing about for the last year.

The following table provides comparative price data for the short-list of pure play energy storage companies I track. It shows closing prices on November 14, 2008 and July 31, 2009, calculates the percentage of change over the last eight months, and calculates current market capitalizations based on recent SEC reports.

14-Nov 31-Jul Percent Market
Cool Emerging Symbol Close Close Change Cap
Ener1 HEV $6.75 $6.38 -5.48% $723.96
Valence Technology VLNC $1.88 $1.83 -2.66% $228.58
Altair Nanotechnologies ALTI $0.87 $0.97 12.14% $90.36
Beacon Power BCON $0.82 $0.76 -7.32% $90.62
Cool Sustainable
Maxwell Technologies MXWL $6.50 $14.16 117.85% $328.26
Advanced Battery ABAT $2.13 $4.28 100.94% $247.47
Ultralife ULBI $9.08 $6.42 -29.30% $108.88
China BAK CBAK $1.99 $3.31 66.33% $190.95
Hong Kong Highpower HPJ $3.50 $1.41 -59.71% $19.12
Cheap Emerging
Axion Power International AXPW.OB $1.30 $1.25 -3.85% $44.53
ZBB Energy ZBB $0.93 $1.30

39.78% $13.80
Cheap Sustainable
Enersys ENS $6.86 $19.79 188.48% $951.70
Exide Technologies XIDE $3.38 $4.87 44.08% $367.78
C&D Technologies CHP $1.94 $2.00 3.09% $52.59
Active Power ACPW $0.40 $0.74 83.75% $48.85

Between November 14, 2008 and July 31, 2009, a $1,000 index investment in the Dow Jones Average, the Nasdaq Index and the S&P 500 would have resulted in an average portfolio appreciation of 17.2%. The following table summarizes the portfolio gain or (loss) that would have resulted from an investment of $1,000 per company in each of my four groups.

Tracking Percentage
Category Gain (Loss)
Cool Emerging (0.8%)
Cool Sustainable 39.2%
Cheap Emerging 18.0%
Cheap Sustainable 79.9%

Equity markets are driven by a combination of greed and fear, emotional reactions that are often at odds with fundamental economic realities. Over the past few years, both cool groups have been driven by headlines that highlight opportunities while both cheap groups have been driven by headlines that highlight problems. Since headlines invariably feed the greed and fear cycle, the cool groups were driven to relatively high valuation levels while the cheap groups were driven to relatively low valuation levels. If the last eight months are any indication, the pendulum is moving back toward a more balanced position where cheap group valuations will eventually catch up with cool group valuations. As the following summary valuation metrics show, they still have a long way to go.

Shares Price/ Price/ Price/ Book Value
Cool Emerging Group Symbol (000s) Earnings Book Sales Per Share
Ener1 HEV 113,474 8.63 48.38 $0.74
Valence Technology VLNC 124,905 8.39 -$0.55
Altair Nanotechnologies ALTI 93,153 2.48 16.39 $0.39
Beacon Power BCON 119,239 3.67 519.28 $0.20
     Group Average 4.93 148.11 $0.20
Cool Sustainable Group
Maxwell Technologies MXWL 23,182 5.41 3.79 $2.65
Advanced Battery ABAT 57,821 14.31 2.88 5.04 $1.47
Ultralife Batteries ULBI 16,959 12.64 1.19 0.41 $4.92
China BAK CBAK 57,688 1.19 0.82 $2.74
Hong Kong Highpower HPJ 13,563 10.85 1.14 0.28 $1.23
     Group Average 12.60 2.36 2.07 $2.60
Cheap Emerging Group
Axion Power International AXPW.OB 35,625 7.25 42.09 $0.17
ZBB Energy ZBB 10,618 1.74 15.24 $0.74
     Group Average 4.50 28.67 $0.46
Cheap Sustainable Group
Enersys ENS 48,090 11.56 1.49 0.49 $13.43
Exide Technologies XIDE 75,519 7.49 1.09 0.11 $4.37
C&D Technologies CHP 26,296 1.11 0.15 $1.81
Active Power ACPW 66,458         2.24 0.91 $0.30
     Group Average 54,091 9.53 1.48 0.42 $4.98

I have long argued that every energy storage decision boils down to a cost-benefit analysis and the bulk of the incremental sales revenue will flow to companies that serve the mundane needs of the average user, rather than the extreme needs of “power users.” Based on his recent statement that lithium-ion batteries are overhyped, it appears that Vinod Khosla, one of Silicon Valley’s most active cleantech investors, agrees with me. While I believe fundamental market drivers will result in rapid and sustained growth across the entire spectrum of energy storage companies, I’m convinced the superstars will be the manufacturers of objectively cheap products that can serve the needs of average users at a reasonable price. Until cheap group valuations approach parity with cool group valuations, I will continue to believe that investors who want to maximize portfolio performance in the energy storage sector should focus on the cheap groups instead of the cool groups.

DISCLOSURE: Author is a former director Axion Power International (AXPW.OB) and holds a large long position in its stock. He also holds small long positions in Exide (XIDE), Enersys (ENS) Active Power (ACPW) and ZBB Energy (ZBB).

John L. Petersen, Esq. is a U.S. lawyer based in Switzerland who works as a partner in the law firm of Fefer Petersen & Cie and represents North American, European and Asian clients, principally in the energy and alternative energy sectors. His international practice is limited to corporate securities and small company finance, where he focuses on guiding small growth-oriented companies through the corporate finance process, beginning with seed stage private placements, continuing through growth stage private financing and con
cluding with a reverse merger or public offering. Mr. Petersen is a 1979 graduate of the Notre Dame Law School and a 1976 graduate of Arizona State University. He was admitted to the Texas Bar Association in 1980 and licensed to practice as a CPA in 1981.

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