TPS Trade Alert – March 19, 2015

Recommendation:

Buy Ocean Power Technologies (NASDAQ: OPTT) up to $0.56 per share.

 

Trade Rationale:

Lately, I’ve been avoiding energy companies like the plague.  We’ve even gone so far as to sell the vast majority of energy related companies from our portfolio.  The ultra-low price of oil has really dried up potential profits in the sector.

However, I do believe there’s still opportunity on the technology side of energy.  More specifically, renewable energy tech still has a very bright future (regardless of what oil costs).

One very promising area of renewable energy technology is ocean wave energy.

In a nutshell, wave energy technology allows certain devices to harness the power of wave motion to generate electricity.  (This is different from tidal energy, although the concept is similar.)  The up and down motion of waves turns hydraulic pumps (or something similar), which essentially captures power and converts it into stored energy.

The details of the technology can get quite complex, as you probably imagine.  However, the results make perfect sense.  This tech is taking something natural and renewable and turning it into electricity.

Wave power has been around for a long time, but isn’t used widely for commercial energy generation.  Technological limitations and other issues have kept wave power from widespread adoption.

However, as renewable energy becomes a bigger part of our future, all types of green energy are being reconsidered.  With advances in technology, wave power has become a realistic form of energy generation.

One wave power company I believe has a bright future is Ocean Power Technologies (NASDAQ: OPTT).

OPTT develops proprietary systems which generate electricity by harnessing the renewable energy of ocean waves.  The company offers utility scale PowerBuoy systems to supply electricity to the power grid, and autonomous PowerBuoy systems designed for independent power generation.

Utility scale wave power projects have been where the main problems have arisen.  There are various political and technical reasons why these types of products haven’t performed as well as expected.

As such, OPTT is shifting its focus to the more cost efficient, smaller scale, autonomous wave power products.  The company believes this path will lead to commercial success more quickly.

The market for off-grid power in an ocean setting is actually quite robust.  In fact, four market sectors would be excellent targets for this type of application.  These include offshore wind, ocean observing, defense & security, and oil & gas.

Given the big dollars involved in these key sectors, I believe this is an excellent strategic decision by OPTT.  After all, private companies (not including defense) have far less red tape to wade through.  It’s a lot easier than having to deal with the bureaucracy behind utility scale projects.

Moreover, OPTT will be ready to deploy their new (smaller scale) technology this summer.  The cost effective nature of the product will allow for more agility.

From a financial perspective, you have to take a forward looking approach to investing in OPTT.  Basically, the company isn’t generating much in the way of revenues at the moment.  It makes sense given the deployment of PowerBuoy systems isn’t expected until later this year.

Nevertheless, even though we have to take a long-term view on revenues, there are plenty of reasons to like the balance sheet.

The company has $20 million in cash and barely any debt to speak of.  That works out to a current ratio of over 7x.  Clearly, we don’t have to worry about OPTT suddenly going bankrupt.

Meanwhile, the company’s cash per share is over $1 per share… but the stock is trading for under $0.50!  How is this even possible?  Considering the cash position alone is worth at least twice the share price, I’m not really sure.

In other words, there’s no reason to wait any longer.  Go ahead and grab shares of OPTT as soon as possible.

Remember to use limit orders when placing your trades.  And stick to your position sizing rules.

 

Key Facts:

Company:                                  Ocean Power Technologies

Ticker:                                       OPTT

Recent Price:                              $0.47

Buy up to Price:                          $0.56

Market Cap:                               $8.3 million

Avg. Daily Volume (3 month):       206,523 shares

 

Chart:

 

Category: TPS Trade Alert