by Debra Fiakas CFA
Everybody likes a bargain. Investors really like a good cheap buy. A review of our four alternative energy industries revealed three stocks trading below industry average multiples of forecasted earnings. This is the final article in the series, the first looked at Ormat (ORA:NYSE), and the second looked at Kadant (KAI:NYSE).
The first week in November 2014, could have been a turning point for trading in shares of Advanced Energy Industries, Inc. (AEIS: Nasdaq). The company reported flat sales in the quarter ending September 2014, compared to the same quarter last year, but delivered higher earnings by 15%. Investors were thrilled with the results, bidding the stock higher in the first week of trading following the announcement.
Advanced Energy supports industrial customers and the solar power industry with power conversion technologies and products. Continued difficulty in utility-scale solar power sector has cut into demand for the inverters Advanced Energy supplies. Sales in this segment were down in the most recently reported quarter. Fortunately, demand for precision power products has been robust, delivering low double digit year-over-year growth. Precision power products represent the largest portion of the company’s total sales.
What really got shareholders excited was management’s guidance for the December 2014 quarter that was announced during the earnings conference call. Sales are expected to be in a range of $140 million to $150 million, a level which was in-line with the prevailing consensus estimate. However, guidance for earnings in a range of $0.29 to $0.37 for non-GAAP earnings was well above the consensus estimate. Advanced Energy has a consistent track record of beating the consensus estimate, which suggests management does a very good job of managing expectations with guidance levels that are achievable.
The prospect of higher than expected earnings helped the stock register a particularly bullish formation in a point and figure chart in the first day of trading following the earnings announcement. The quadruple top breakout alerts investors to a significant amount of unmet demand and suggests the stock has developed sufficient momentum to reach the $30.00 price level. If achieved this represents 47% upside potential. Note that there is a very strong line of price support at the $19.00 price level, setting up a particularly appealing risk/reward picture for investors taking a long position in AEIS.
At the current price AEIS trades at 11.6 times the consensus estimate for 2015. That multiple might even improve if analysts following the company take management’s bullish guidance into consideration.
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.