TPS Trade Alert – August 27, 2014

Investors who spend any time watching or reading financial news will hear plenty about energy companies.  Between fossil fuels, renewable energy, pipelines, and more, there’s always a plethora of info to go around.

However, one area which is often ignored is energy storage.

You see, energy storage has created quite the conundrum for scientists.  Our technology for storing energy hasn’t improved all that much since the battery was first developed. Sure, we have better batteries, but we still have a long way to go to truly solve the energy storage bottleneck.

Here’s something to consider…

There’s a lot to like about how far renewable forms of energy have come as alternate sources of electricity and fuel.  But, how exactly will we integrate those different sources of energy into the grid?  Moreover, how can we utilize the additional sources of energy to keep the grid (based on old technology) to keep from breaking down during peak demand?

That’s where ZBB Energy (AMEX: ZBB) comes in.

ZBB develops energy storage and innovative power control technologies to meet the needs for reliable power for grid and off-grid environments.  The company’s products are also critical components in hybrid vehicle control markets.

ZBB’s energy storage solutions and systems are based on the company’s proprietary zinc bromide rechargeable electrical energy storage technology and power electronics systems. In simpler terms, the products provide advanced electrical power management platforms for distributed renewable energy, energy efficiency, power quality, and grid modernization.

In a nutshell, the company makes storage systems that can integrate energy from any source, including grid, solar, wind, fuel cells, etc.  Then, it provides customers with continuous power, grid backup, storage, peak rate management, and more.

Here’s the thing…

As I mentioned earlier, old grid technology can be unreliable and has limited ability to store energy.  Not to mention, fossil fuel generated electricity is often expensive and dirty.

ZBB addresses these needs by providing connectivity to renewable energy sources at a cost effective rate.  And, it provides a backup power source to help with grid disruptions.

Financially speaking, ZBB’s numbers show the company is still in the early phases of developing its target market.  Full year revenues for fiscal 2013 were $7.3 million, but that’s a 224% increase from the prior year.

Meanwhile, the company’s sales opportunities in the near-term exceed $40 million. Plus, the market for energy storage is roughly $26 billion in the US alone!

Moreover, the company has $13 million in cash with debt at just $2.5 million.  That works out to a robust current ratio of 4.2x.

And just this past week, the company raised another roughly $15 million in cash with the issuance of new shares.  Now, since the shares were issued at $1.12, the stock price dropped to accommodate the issuance.  However, the decline should be short-term.

With the money from the new equity deal, ZBB will have plenty of opportunities to expand production, increase their marketing and sales, or even acquire another company.

Given the size of the market, the growing need for energy storage solutions, and ZBB’s strong cash position, we think this company has a very bright future.  And, with the recent stock issuance, we can grab the shares at a very attractive price.

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

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