Why A123 Systems Still Not Worth It
By Rick Pearson 10/05/09 - 03:25 PM EDT Stock quotes in this article: AONE , CMTP , HPJ
Leave a Comment See All 6 CommentsA123 Systems(AONE Quote) shares reached $28.20 today, implying a market cap of approximately $2 billion. This is more than double its IPO price, and triple the low end of the initial IPO offering range.
Investors are clearly placing a lot of hope in A123's technology, but are also ignoring the company's fundamentals and playing the stock for its momentum.
At the other end of the spectrum, other lithium-ion battery plays such as China Digital Communications(CMTP Quote) are also trading out of line with their fundamentals, but are undervalued rather than overvalued.
In my last article on A123+, I questioned its valuation when it was trading around $18 per share; I received massive amounts of feedback suggesting I didn't understand the potential for A123's lithium iron phosphate technology. I responded to many of these emails with a simple question: "What revenue and margin forecasts are required to justify the current valuation of A123?" I received zero responses that actually answered the question, so I decided to construct an analysis of my own.
From the IPO prospectus, one can see that A123 has two business lines, battery products as well as R&D services. The majority of revenue and presumably the basis for growth expectations is derived from product sales, so I will confine my analysis to this part of the business.
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