by Debra Fiakas CFA
Shares of Ocean Power Technologies (OPTT: Nasdaq) have traded off over the past two weeks, after setting a new 52-week high in early March 2013. Investors had bid the stock up in the weeks before the fiscal third quarter earnings announcement, but those gains almost have been erased. The new negative trend has put OPTT on our list of small-cap energy stocks sinking into oversold territory.
Is the sell-off a chance to pick up shares of this ocean power developer at a bargain? A better question might be what was in that earnings report that spooked investors into shedding the stock.
Ocean Power is trying to develop ocean power technologies. The company’s PowerBuoy system is an ocean-going rig that is configured to capture and convert wave energy into electricity. Ocean Power has managed to set up several demonstration projects around the world, supported by government grants and development contracts. Ocean Power also has a contract with Mitsui Engineering for a deployment near the coast of Japan.
Still Ocean Power has to come up with matching funds. In January 2014. the company raised $6.3 million through the sale of common stock. The company needs the cash to support operations, which used $10.7 million in cash over the twelve months ending January 2014. There is now $17.4 million in cash on the balance sheet, it appears the company has enough financial muscle to last about a year and a half.
Perhaps investors were looking for some evidence that Ocean Power would be able to reduce its cash burn. However, the quarter results revealed management is still grappling with the nitty gritty of getting its projects off the ground and into the ocean. Permitting and financing matters have delayed its projects in Oregon and Spain. Consequently, reported revenue in the third fiscal quarter was significantly lower than expectations. There is no hope for reduced cash burn when management reveals one delay after another.
Thus, after hitting a new high price, it should not be a surprise that OPTT shares weakened. It might be a bit premature to begin buying at the current price near $3.50. A review of historic trading patterns suggests there is a line of price support at near the $3.40 price level. Should the stock test and fall through this level, it is quite possible the stock could fall considerably further, perhaps even to the $2.50 price level.
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.