TPS Trade Alert – April 10, 2014
April 10, 2014
Recommendation:
Buy US Geothermal (AMEX: HTM) up to $0.92 per share.
Trade Rationale:
Typically, when investors have considered buying microcap stocks in the renewable energy business, the choices have been limited. For the most part, companies that fit the appropriate profile are engaged in some kind of specialty technology.
For instance, there was a time when there were an abundant amount of small companies building solar power technology. Over time, those companies have dwindled as they’ve been acquired, gone out of business, etc.
There are also the alternative fuel types of stocks. We’re talking about fuel cell technology, biofuels, and the like. Many of these companies are still around as microcap companies, with a few making the jump to small cap status.
However, one type of renewable energy company rarely makes it on to the radar screen of most investors. This type of renewable energy is one of the most efficient in the world… and very few companies are involved.
The energy source I’m referring to is geothermal energy.
Geothermal energy is energy recovered from the heat of the earth’s interior. This type of energy can show up in the form of hot springs, geysers, and volcanoes.
Basically, the earth’s interior heat can, in places, heat groundwater and create steam. This steam can be harnessed to turn turbines and generate power. It’s similar to hydroelectric power, but doesn’t require environmentally intrusive dams.
There are several major benefits to geothermal power. Of course, it’s renewable. The earth’s interior heat doesn’t go away, and deep sources of groundwater are typically replenished over time.
What’s more, geothermal energy is completely emission free. It’s doesn’t burn fuel, and the energy production is completely clean. Plus, the power plants can run 24 hours a day.
As the need for additional, clean sources of energy increases over time, alternate sources such as geothermal will become invaluable. In fact, the geothermal industry is rapidly growing into a $1.5 billion industry.
For interested investors, there are very few choices for investing in this promising industry. As such, if you want to buy into this specialized field, the most obvious company to buy shares in is US Geothermal (AMEX: HTM).
HTM develops geothermal resources in the western region of the US. The company operates three geothermal power plants in Oregon, Nevada, and Idaho. Plus, it has advanced development properties in Guatemala and Nevada.
What’s more, the company just announced the purchase of yet another advanced development project in the Geysers, California. HTM paid $6.4 million for Ram Power, which includes geothermal leases and development design plans on the largest producing geothermal field in the world.
While the advanced development projects are exciting, the best part of HTM is that it’s already transitioned from a development company to an operating company.
HTM has proven cash flow and predictable results. Essentially, the riskiest part of the investment cycle is over.
Just check out the results…
In 2013, the company generated $27.4 million in revenue, compared to $9.8 million in the prior period. Meanwhile, EBITDA jumped from negative $500,000 to a $14.5 million gain!
And that’s not all…
Net income came in at $4.1 million. In the year prior, the company had a net loss of $4.3 million. In other words, HTM is now a fully profitable company.
The company’s holding nearly $29 million in cash (prior to the Ram Power purchase) compared to $103 million in debt. However, current assets are a whopping 6.4x current liabilities. Between the company’s robust current assets and strong operating cash flow, debt servicing will not be an issue looking ahead.
Despite HTM being a fully operational and profitable company, the shares are still trading at dirt cheap prices. Not to mention, the company has several exciting development projects.
Nevertheless, the stock’s trading at just 1.2x book value. That means the market is basically pricing HTM at just over the value of its assets. It’s not taking into account future growth, which could be significant.
Now’s your chance to grab HTM shares at a very attractive level. It’s the perfect time to buy into the geothermal energy industry.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
| Company: | US Geothermal |
| Ticker: | HTM |
| Recent Price: | $0.78 |
| Market Cap: | $80.6 million |
| Avg. Daily Volume: | 1,397,590 shares |
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Category: TPS Trade Alert
