Is Advanced Battery Technologies a Buy?

With U.S. battery manufacturers struggling to get final products off the ground, one Chinese competitor continues to pile up the profits that elude its rivals.

This week, Advanced Battery Technologies (Nasdaq: ABAT  ) announced full-year earnings packed with explosive growth and great profit numbers. In 2010, revenue jumped 52.8% to $97.1 million, while net income rose 68.5% to $36.7 million, or $0.48 per diluted share.

Compared to other battery makers, Advanced Battery Technologies looks like a no-brainer:

Company

Market Cap, Millions

Revenue, Millions (TTM)

Gross Margin

P/E

Advanced Battery Technologies $254.4 $97.1 47.3% 6.4
Valence Technology (Nasdaq: VLNC  ) $245.7 $16.1 12.4% n/a
A123 Systems (Nasdaq: AONE  ) $831.7 $97.3 -17.9% n/a
Ener1 (Nasdaq: HEV  ) $471.5 $77.4 17.9% n/a

Source: Yahoo! Finance.

A 6.4 P/E ratio is ridiculous, right? Why hasn't the market jumped on the Advanced Battery Technologies bandwagon yet? Alas, a few things still hold back the stock:

  • Share count has been growing almost as fast as revenue. That means EPS hasn't been rising nearly as quickly as you might think.
  • You never know when a dilutive stock offering will arrive. Last year, with $74.3 million in cash on the balance sheet, management decided to offer shares with warrants attached. Not exactly a shareholder-friendly move.
  • And if you aren't even a little worried about being caught up in another Chinese stock collapse, check out what's happened to China MediaExpress, Fuqi International, or China Green Agriculture. I'm not suggesting that ABAT will end up in an accounting scandal or an allegation of fraud but, the worry is an overhang for Chinese stocks and can't be ignored.

Outstanding growth doesn't always make a great investment. In this case, I would test the waters cautiously with Advanced Battery Technologies. Since I said the company looked like a good buy in the battery space six months ago, it has outperformed peers -- but it's been a wild ride along the way. I just can't put it on my buy list right now.

Do you think Advanced Battery Technologies is a buy? Leave your thoughts in our comments section below and be sure to add ABAT to My Watchlist, and My Watchlist will find all of our Foolish analysis on the stock.

China Green Agriculture is a Motley Fool Global Gains choice. The Fool owns shares of China Green Agriculture. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 24, 2011, at 6:17 PM, goldminer14 wrote:

    FYI

    For the 9 months ending 12/31/10 revenue for Valence Technology was $32 million up from $12.2 in the comparative period in the prior period. An increase of 163%.

    Gross margin for the same periods increased from 12.6% for the 9 months ending 12/31/09 to 20.3% for the 9 months ending 12/31/10.

  • Report this Comment On March 28, 2011, at 2:14 PM, IBJAMMIN wrote:

    According to Yahoo Finance book value is $2.46. Cash on hand over a dollar. Debt = 0. So at $3.36 (Mon 2.PM) your getting the whole for less than book value even though they have incredible growth and profitability. Not discussed in the article they also are a maker of electric powered scooters and bikes that sell very well in Asia and Italy that I know of. There may be other markets too. With gasoline at current prices and air pollution in Chinese cities intolerable, it's hard to imagine circumstances where this company doesn't succeed. I believe the float is small enough for well funded hedge funds and wall St brokerages to push the price around with short selling, covering and then reversing position to make a killing in both directions.

  • Report this Comment On March 30, 2011, at 11:39 AM, AStarSearch wrote:

    Here is a circumstance in which the company does not succeed: the management is shady, misrepresents everything in all of its SEC filings, steals money through shady acquisitions, and dilutes shareholder equity through inexplicable secondary offerings when price to book is supposedly crazy low.

    The Chinese small cap arena is just insane right now. You're better off playing roulette, at least you know the odds there.

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