Investors in Ener1 Run the Risk of a Shock With Their Electric Dreams [WSJ: Heard on Street]
By DAVID REILLY
Even in the bleakest markets, some investors can't help but dream. Yet chasing the next big thing during the financial crisis can lead to plenty of sleepless nights.
Just look at Ener1, a producer of lithium-ion batteries. The company isn't yet profitable and sales this year have yet to break the $1 million mark. Yet Ener1 sports a roughly $900 million market value and is among only a handful of big U.S. companies with a stock price up more than 50% over the past 52 weeks.
The reason? Investors are hoping Ener1 will cash in on a move to electric cars. On the firm's third-quarter conference call, Chief Executive Charles Gassenheimer said the U.S. elections "will promote an energy policy that puts a gale-force wind at our back."
Maybe. But it is early in the race to develop electric cars. Much can go wrong along the way, including a risk that lower oil prices reduce the political will for a big shift in car technology.
And Ener1 faces a more immediate problem. Its biggest customer for car batteries is skidding.
Norway's Think Global said Monday that the financial crisis has "severely impacted" its ability to raise capital to expand production. As a result, it is extending a Christmas production shutdown until the end of January and trying to secure Norwegian government assistance. The company also said it planned to explore a "partial or full sale to a strategic partner."
Ener1's Mr. Gassenheimer on Monday acknowledged financial distress at a key customer is "not good news." But he said that a $34 million purchase order from Think for 2009 "has not been rescinded."
That may be the case, but it gives Ener1's investors plenty to worry over, especially given the company's rich valuation. Assume, for example, that Think gets back on its feet and Ener1 meets analyst forecasts of 2009 revenue of about $55 million. Then, add in possibly $40 million to $50 million in additional revenue from a Korean battery maker Ener1 acquired this fall.
Even if revenue reaches that level, and that is a big if, Ener1 would be trading at a price of about nine times sales. That is lofty. Any slippage and the valuation rockets even higher -- on a trailing 12 months basis, Ener1 trades at a dot-com-style multiple of more than 1,000 times sales.
Mr. Gassenheimer counters that Ener1 will have production capacity for revenue of $700 million and expects to meet that by 2011.
Ener1 may well secure a place in a new electric-car industry. But at the current price, investors are being asked not just to dream, but to take success for granted.
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