Global Hunter’s Justin Cable Weighs in on Ocean Power (Nasdaq:OPTT)

Dec 15, 2008
Author: SCP Editor

December 15, 2008 – Analyst Comments – Global Hunter’s Jason Cable weighed in on Ocean Power Technologies (Nasdaq:OPTT), downgrading the stock to NEUTRAL after the company reported quarterly results below expectations and amidst poor visibility.

Last week Ocean Power released Q2 financial results:

·         Revenues for Q2 were $667 thousand, down from $1.6 million, and net loss was $6.1 million or $0.60 per share, as opposed to a net loss of $1.8 million, or $0.18 per share last year.

·         Revenues for the six months ended October 31, 2008 were $2. 5million, compared to $2.2 million for the same period last year, while net loss was $10 million, compared to a net loss of $4.3 million last year.

·         Contract order backlog increased to $8 million, from $3.7 million at the end of the previous quarter.

·         Cash & cash equivalents were $89.6 million at October 31, 2008. Cable was looking for revenues of $1.6 to $1.7 million for the quarter, and for a net loss of $3.9 million, or $0.38 per share. Cash burn was also higher than Cable had forecast.

Given the lackluster results, Cable underscored that Ocean Power is very much still in development stages and needs to prove out its model further until he gets behind the stock. In the meanwhile, he recommends taking a sideline view on the stock. We couldn’t agree more. Adding its trailing six months and backlog, assuming it booked 100% of its backlog this year, the stock is trading at 4.2x  the $18 million or so number. In this market environment, where growth has been priced out of stocks given the near-term uncertainty, we think a multiple of 4x revenue for an unprofitable company is way overblown, and think the stock is probably more fairly valued at $1.60 to $1.70, or about 1x its run rate.

We are optimistic about ocean and tidal power over the longer term, and Ocean Power is likely going to be a key player in this market as it evolves – if it can stay solvent. But, as Cable’s comments suggest, the stock is probably ahead of itself in the near term until the business matures a bit further.

Important Disclosure: SCPEditor does not hold any position in OPTT. The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance.