by Debra Fiakas CFA
Mid-June 2015, Ocean Power Technologies (OPTT: Nasdaq) announced final permits had been secured to deploy one of its power buoys off the coast southeast of New York City. The company has lost no time in laying down mooring lines for the buoy. The next step is to watch the skies for the best weather conditions to deploy the buoy. Over the next year, Ocean Power will collect data the power buoy’s performance.
Ocean Power Technologies is a developer of ocean wave energy technology. The company has been working on its ‘power buoy’ for over fifteen years for off-grid as well as integrated network electricity generation. The company’s website provides a concise description of how the power buoy works, using a mechanical system to drive electrical generators using wave motion. Two different designs provide size and capacity alternatives.
In the twelve months ending January 2015, Ocean Power generated $4.0 million in total revenue with its power buoy technology. That revenue level is not adequate to support development and other operating costs. The net loss was $13.1 million.
For any company not yet generating profits, the first question has to be about the adequacy of cash resources to support operations until sales begin to ramp. Operations used $13.2 million in cash during the twelve-month period ending January 2015. With another $19.2 million in cash in the bank, it would appear Ocean Power has some time to keep working on its power buoys. That said, we note that activity has been suspended under the company’s contract with Mitsui Engineering & Shipbuilding for the purposes of gathering and evaluating data needed in the next step of the project. Work is expected to resume yet in 2015, but with a reduction in revenue in the quarter ending April 2015, it is not likely the company can report growth in sales over the prior fiscal year.
Investment in developmental stage companies like Ocean Power is fraught with risk. What if the technology does not work? What if management cannot develop a good strategy to commercialize its technology? On and on it goes with problems and pitfalls. With that practical view in mind, I note that Ocean Power has been making progress with each passing quarter, with management blocking and tackling each obstacle as it comes along.
OPTT looks over sold according to one of my favorite technical indicators, the Commodity Channel Index. Granted this micro-cap stocks trades with so little volume technical indicators can be less than robust. Earlier this year, the company has notified by Nasdaq that continued listing is in jeopardy if the price is not brought up above $1.00. Unfortunately, the current price of OPTT is still just over two bits. Nonetheless, at the current price level the stock is more an option on management’s ability to move the ball forward. For investors with a tolerance for risk, a two-bit option on Ocean Power’s technology and management team could be an interesting play on renewable energy from the ocean.
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. OPTT is included in the Ocean Group of Crystal Equity Research’s Electric Earth Index.