PSB Monthly Issue March 2015
INVEST IN THIS RENEWABLE ENERGY COMPANY TO GET AHEAD OF THE CROWD
One of the interesting consequences of cheap oil is how it will impact investments in renewable energy. You don’t have to look far to see the naysayers claiming that renewable energy is dead with oil so cheap (and apparently abundant).
But that’s missing the point.
Oil is still a limited resource and will eventually be expensive again. It’s also not good for the environment, at a time when environmental concerns are taking center stage.
And that’s not all…
Because oil is so cheap, it doesn’t offer the same investment opportunities it once did. Who wants to invest in expensive oil-related tech with oil at $50 per barrel?
There’s still a substantial and growing need for renewable energy resources. And, there are still plenty of opportunities for investments in the space.
What cheap oil is doing is pushing renewable energy companies to make their products even more efficient. That’s why, in several regions, solar power is as cheap as fossil fuel generated energy.
But one of the most efficient renewable energy sources of them all is wind energy.
That’s where Broadwind Energy (NASDAQ: BWEN) enters the discussion.
Key Investment DataName: Broadwind Energy PSB Rating System 4.7 Stars Raging Revenue: (4.5 stars) The company has had seven straight year of revenue growth. Annual revenues rose 12% year over year. Plus, there are plenty of catalysts for growth in 2015. Beautiful Books: (4.8 stars) BWEN has over $20 million in cash compared to $4 million in debt. The company also has an undrawn $20 million credit line. Stellar Structure: (4.5 stars) The company’s insider ownership is just 5%. However, institutions own 51%. Overall, it looks like plenty of smart money is in on BWEN. Valuation Verification: (4.8 stars) BWEN is trading at just 0.31x revenues and 0.86x book value. Given the valuation, the shares could climb 100% or more. Meaningful Milestones: (4.7 stars) BWEN already has basically sold out wind tower production for 2015, with over $200 million in backlog orders. The company also recently announced a $10 million share repurchase program. |
THE WIND POWER BUSINESS
BWEN provides products and services to the energy, mining, and infrastructure sectors. Ultimately, wind energy customers provide nearly 70% of the company’s revenues. The company’s primary products are towers designed for large wind turbines. In fact, BWEN is the leading wind tower manufacturer in the US.
Broadwind also provides products (and services) for mining, oil & gas, and the steel industry. Those products include mostly gearboxes and weldments. Those two categories comprise about 20% of the company’s revenues.
However, let’s focus on the wind energy industry, because that’s where the biggest opportunity is for growth.
You see, in a 7-year period, BWEN has grown its wind tower business from $5 million to $150 million in annual revenues. And, wind energy is only going to grow.
Part of the growing demand for wind power is due to the 58% reduction in cost since 2009. Moreover, larger rotors are opening up new geographic areas which didn’t make sense previously.
Finally, regulatory reduction in coal plants is also creating more demand for wind power.
And if you need further proof of the growing demand for wind power, the company’s tower production capacity is sold out for 2015. That’s over $200 million of backlog orders sitting in the pipeline.
THE NUMBERS
Despite some quarterly struggles, the big picture for BWEN looks promising. Fourth quarter revenues of $54 million were 5% lower from the prior year due to a short-term production issue, which has since been solved.
Meanwhile, full-year revenue came in at $241 million, a 12% climb from the year before. Operating loss was also cut in half over the same time frame. Finally, a significant investment in restructuring has been completed, which should benefit the bottom line in the coming quarters.
Even better, BWEN’s balance sheet is in great shape.
The company has $20 million in cash compared to just $4 million in debt. The excess cash is allowing management to undergo a $10 million share repurchase program. What’s more, the company has a $20 million undrawn line of credit.
INVESTMENT RISKS
As with any small cap investment, BWEN does have a few risks.
A slowdown in the overall economy could lessen the amount businesses spend on renewable energy installations.
Additional competition in the space could make it harder for the company to grow business.
Finally, changes in energy regulations could alter the strategic direction of the company and increase costs.
POTENTIAL RETURN OF 100% OR MORE
BWEN is the unquestioned leader in wind tower manufacturing in the US. The company’s been growing revenues for years, and it has a plenty of cash on hand.
Yet, the shares are trading at just 0.31x sales and 0.86x book value.
By investing in the company at this price, you’re basically paying less than the assets are worth on their own! That doesn’t make any sense considering the growth potential in the wind power industry.
Based on our analysis, we see BWEN climbing to $10.00 a share or more. Buy the shares now for potential gains of 100% or more!
ACTION RECOMMENDATION
BUY Broadwind Energy (NASDAQ: BWEN) up to $5.40 per share.
Recent price is $4.97.
Use a stop-loss of $3.50 on this position.
Don’t forget your position sizing and stop-loss rules.
Portfolio Update
Here are some highlights from the past couple weeks…
- USA Technologies (USAT), Demand Media (DMD), Gain Capital (GCAP), NetSol Technologies (NTWK), and Carriage Services (CSV) all reached new highs since our last update.
- NetSol Technologies (NTWK) crossed the 100% gains mark since our last update.
Category: PSB Monthly Issues
