Finding an Undiscovered Stock in Alternative Energy
Stockcherry Introduces UQM Technologies (Amex:UQM).
UQM Technologies, Inc. (AMEX:UQM) is sitting at the crossroads of the next generation of vehicle production. It produces high efficiency electric motors, generators and power controllers for automotive, aerospace, medical, military and industrial markets. uqm.com
Hybrid vehicles are in their infancy, but clearly electric drive technology is an investment play in sync with the escalation of energy prices. Whether in on-road or off road vehicles, industrial, military, consumer or recreational sectors, economic forces are driving these technologies toward the market. You would have to be living in a cave not to realize the proliferation of hybrid cars on the road.
The alternative energy sector has been hot as of late with many speculative names with little or no revenues making significant moves to the upside. UQM technologies is a company with significant partnerships that can one day become a major player in the hybrid vehicle market.
The “holy grail” of electric vehicle systems is the ability to “re-use” unwanted kinetic force. Put in layman’s terms, when you step on the brake to slow for a traffic light, the kinetic energy you already paid for by burning fuel is wasted – or more precisely, burned off by the braking system. In other words, you pay to speed up, and you pay again to slow down.
Background Information
forbes.com
It is impossible to reverse the process of burning hydrocarbon fuel to create kinetic force. But electricity is different -- what if that kinetic force could be “harvested” back to electricity again, so the major portion of the energy used to speed up could be recaptured and reused?
These are some of the factors that lead us to suggest UQM as our first Stockcherry
Clean balance sheet and very stable capital structure
$11.5+ million cash and short-term investments
Less than $1m debt
Modest cash burn rate (less than $1.5m per year)
$ 47m NOL carryforward – significant income will be shielded from taxes if company turns profitable
Real revenues – company is just below breakeven
Relatively conservative share expansion – 24.5m outstanding
Market cap < $100m
CEO William Rankin has been with the firm for over a decade
No appreciable insider selling
Company has smartly and scrupulously developed its intellectual property portfolio at clients’ project expense – not its own
List of high profile revenue-generating customers in the last 12 months includes:
John Deere
US Army
US Air Force
US Navy
US Marines
Delphi Automotive
LAX airport shuttle buses
Stewart &Stevenson
Carnegie-Mellon
Denver Reg. Transp. District.
Eaton Corp.
Department of Energy FreedomCar
All of the above customers press releases can be found at uqm.com
Where has UQM been ?
The Company strategy has been to quietly accumulate corporate contracts that have allowed them to develop their intellectual property at clients’ expense. This has kept the burn rate low. Meanwhile, they’ve been gearing up for large scale production of final assemblies based on low-cost contract component manufacturing from China. Sounds smart to us. This company is only one production contract away from breaking into the black. From there, its up, up and away.
Risk factors to consider:
Revenues still very low – run rate < $5 million per year.
Operating losses continue
Lots of well-funded large companies operating in the space.
Our thoughts? When shopping for a low priced stock in the alternative energy space, you can’t have everything.
Overall, we think this company is in the right place at the right time with the right technologies, and could easily see $8 per share or more, which would qualify it for Russell 3,000 inclusion next year. Despite the intense competition from large and small firms, important customers are returning for follow-on contracts.
We can’t help observing that at today’s prices, UQM could be bought 12 times over for the market cap of Raser Technologies (RSTG), the subject of a prior Stocklemon report. Or UQM can be bought 3 times over for the market cap of Beacon Power Corp(BCON). On a comparison basis, neither of these companies have anything to match UQM's track record of high-value relationships formed around real deals with real customers.
We think the risk/reward is favorable up to 8.00, with a stop below $2.40. As for the premise of “could double in a year”, we think UQM is a lot more realistic candidate than some of the current market folly stocks at the top of today’s volume leader board.
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