Those who follow the shooting stars lists will recognize the ticker attached to Capstone Turbine (Nasdaq: CPST). This money-burning microcap has attracted the momentum crowd before, and often jumps when Jim Cramer mentions it as an "alternative power" play, as he did on his show last night.
Today, the stock has flown up nearly 40%, after Cramer reportedly suggested that Wal-Mart (NYSE: WMT) might buy large numbers of the company's turbines. (I don't watch his show, but if he did make this outlandish suggestion, I no longer wonder why people call him "Crammer.")
I know it's hard to let a little reality get in the way of market action, but let's take a look at the logic behind this, shall we? Apparently, some of Capstone's turbine generators are included in a United Technologies (NYSE: UTX) experiment at one of Wal-Mart's stores. Capstone makes some pretty cool-looking products. I mean, who wouldn't like a refrigerator-sized turbine generator that can run off a few different kinds of gas fuels and run a small business? It's a natural for groups that operate in places where there is no other way to get electricity, like remote oil or gas locations, or maybe Yukon bear camps or rural apocalyptic cults.
Now, when Wal-Mart begins opening stores in the "real" boonies, where there's no power grid or a source of free or even nearly free fuel, maybe it will turn to Capstone. Until then, I suspect Wal-Mart will continue to place stores in inhabited areas, where there's already cheap electricity.
And if you bother to dig through Capstone's financials, you'll see that increased sales might not be such a good thing. This is a company that starts losing money right at the top of the income statement. Yes, folks, its gross margins are negative. It's hard to imagine anything worse than that. When you sell something for less than it costs to make it, you have very little money left for the little things, like manufacturing plants and sales. That, of course, explains why, despite some growth on the top line, the company is actually increasing its cash burn. It consumed more than $43 million through the trailing 12 months that ended Sept. 30.
What Capstone is good at is generating press. It's also been successful at raising cash by selling stock. Indeed, that's the only reason it's afloat. That's how the firm got cash back in 2002, when it sold shares to none other than United Techologies. (Think that has anything to do with the inclusion of Capstone's product in that pilot project? Ya think?) The current cash cache came from an October private placement to a hedge fund, M.A.G. Capital and its affiliated Monarche Pointe Fund.
Why do I feel like I've seen this story before? Oh, yeah, it's the same tale we heard before, but with the fuel-cell biz. Remember how Plug Power (Nasdaq: PLUG), Ballard Power (Nasdaq: BLDP), and FuelCellEnergy (Nasdaq: FCEL) were going to change the world with mini-power plants all over that would free businesses from the grid? How's that story doing?
And if you need a parallel investing tale of the macabre, look no further than late summer, when one Host America ran through the roof based on Wal-Mart hype that (neat coincidence?) revolved around saving energy at Wal-Mart. We all know how well that turned out, don't we? (Hint: That ticker now ends with .PK)
Do yourself a favor on this one. Forget cramming Cramer and his legions of zombies. Capstone may have products, but it doesn't have profits, and it doesn't look like it will anytime in the foreseeable future. The only power story here is going to shock you.
Related Foolishness:
This article was reported with the help of research and data provided by Capital IQ.
Seth Jayson refers piqued readers to the IPIX chart. At the time of publication, he had positions in no company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.
Terms & Conditions
RSS Headlines
Fool UK