TPS Trade Alert – October 10, 2013
October 10, 2013
Recommendation:
Buy Hudson Technologies (NASDAQ: HDSN) up to $2.20 per share.
Trade Rationale:
Once the US government is able to iron out its differences in regard to the debt ceiling and budget, the “regular” issues will be back in the spotlight.
While important items like global warming and reducing carbon emissions have been put on the back burner for the time being, you can bet they’ll be back on the agenda in the near future. Eventually, the government is going to push through regulations which aim to limit carbon footprints and reduce pollution.
Savvy companies will be working towards these goals now – not waiting until the regulations actually come to fruition. Besides, often times improving a company’s carbon footprint means lower energy consumption… and lower costs.
As such, it’s to the benefit of most companies and individuals to seek out assistance with improving energy usage efficiency.
That’s where Hudson Technologies (NASDAQ: HDSN) comes in…
In a nutshell, HDSN provides solutions to the refrigeration industry. The company offers reclaimed (recycled) and virgin (new) refrigerants, refrigerant reclamation and testing, and other refrigerant management services.
The benefits to HDSN services are many.
First off, as I mentioned a minute ago, HDSN’s technology provides significant environmental benefits. The company’s solutions include recycling refrigerants and increasing operating efficiency (which lowers the carbon footprint).
Environmentally friendly companies are only going to become more and more important as government regulations change.
What’s more, Hudson’s optimization of energy systems lowers energy consumption. That can be a significant cost savings to companies and another reason why the company’s services are in demand.
Finally, the EPA has mandated that R-22 (the most commonly used refrigerant) will be phased out by 2020. Recycled/reclaimed R-22 will be the only source of R-22 moving forward.
Because Hudson is the leading reclaimer of refrigerants in the US, they are in perfect position for this transition to occur.
On the financial side, HDSN had a tough second quarter, but the company’s last six months have been above average. The second quarter challenges stem from an oversupply of R-22, which is only temporary in nature.
Over the last six months, revenues came in at $38.6 million, a 4% increase over the previous year. Meanwhile, net income for the same period was $4.8 million, down from $7.6 million a year ago.
As mentioned, profits were hurt by a drop in R-22 prices due to oversupply. It’s a situation which should work itself out over time.
HDSN has $2.3 million in cash compared to $29.3 million in debt. However, current assets are a robust 2x current liabilities. There is no reason to believe the company will have cash or cash flow issues moving forward.
Here’s the best part…
Shares in HDSN are trading at just 5.3x earnings. No matter what industry a company is in, that’s a very low P/E ratio.
Hudson has a strong business model and a solid track record. Plus, it’s perfectly positioned for the R-22 phase out. Basically, there’s no reason why revenues and profits won’t rebound once the R-22 supply reaches normal levels.
As such, we believe this is a great time to buy low on HDSN. At $2.00 per share (as of this writing), it’s a little higher than we usually recommend in this service. However, we believe the opportunity is too good to pass up – so we’re making an exception.
Grab your HDSN shares now.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
| Company: | Hudson Technologies |
| Ticker: | HDSN |
| Recent Price: | $2.00 |
| Market Cap: | $50.1 million |
| Avg. Daily Volume: | 184,417 shares |
Chart:
Category: TPS Trade Alert
