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The past year has been tough for American Superconductor (Nasdaq: AMSC ) but it appears the company is emerging from a time of turmoil to a more steady state of operations. With that in mind, I think investors should take a look at this stock again and consider why it may be a good investment in the future.
Financial results are improving
Financial conditions have been bad for the past year at American Superconductor, but they're starting to show signs of improvement. In the fiscal fourth quarter, revenue was up to $28.6 million from $18.1 million in the fiscal third quarter. Net loss decreased over the same time frame from $26.3 million to $21.2 million and is expected to be down to under a $10 million loss in the current quarter.
The balance sheet isn't as strong as it once was but at the end of last quarter the company had $51.6 million of cash and securities and no debt. Since then the company has been able to access the debt markets and expects to end the current quarter with about $85 million in cash.
The company had nearly $300 million in backlog as of March 31, 2012, and order flow appears to be headed in the right direction. In May, American Superconductor announced a 100-MW order for electrical control systems for 2-MW wind turbines. The company is one of the leaders in the Indian wind market.
Add all of this up and financial results are improving. They're not good yet, but at this point improvement is the best thing investors can hope for.
Big upside in Sinovel lawsuit
After Sinovel stole intellectual property from American Superconductor, the company filed three civil suits against the company in Chinese court (for more detail on the case, click here). American Superconductor is seeking to recover over $1.2 billion for lost shipments and damages related to the theft as well as breach of contract. The amount the company hopes to recover is nearly five times its current market cap, so there's big upside here.
Fighting a Chinese company in Chinese court may be an uphill battle, but there's a lot riding on this case for American Superconductor as well as U.S.-China trade relations. The man who stole the code from American Superconductor, Dejan Karabasevic, has admitted colluding with Sinovel and was found guilty of stealing the technology last year. If China doesn't reward American Superconductor with damages, it will show blatant disregard for both corrupt actions by its companies as well as for intellectual property. U.S. officials all the way up to Congress are watching how China deals with this case.
It's possible, and maybe even likely, that China won't award the company with adequate compensation, but with a $250 million market cap anything significant would be a big win for the stock. Zero compensation may cause American companies to reconsider high-tech investment in the country.
Renewable projects are growing
The number of utility-scale renewable energy projects being built are growing and that should help drive sales of American Superconductor's utility-scale grid products. In the last two quarters nearly half of the solar installations in the U.S. have been utility-scale and the trend toward 1-MW-plus installations is taking place worldwide. With the solar market estimated to be about 30 GW in 2012 the potential there is enormous. Two of the world's largest solar players, First Solar (Nasdaq: FSLR ) and SunPower (Nasdaq: SPWR ) , have multiple GW backlogs of projects and as solar moves past grid parity the number of these projects should grow.
But with this much potential there is plenty of competition for both utility- and residential-scale grid products. Power-One (Nasdaq: PWER ) and Enphase (Nasdaq: ENPH ) are larger inverter suppliers by revenue than American Superconductor's $11.8 million in revenue last quarter and will be tough competitors. So far, American Superconductor is something of an underdog, but the upside in grid is tremendous.
Two sides of the coin
I've laid out the three best reasons to invest in American Superconductor but there is still a lot of downside potential that investors should be aware of. I'll be back Thursday to discuss the three biggest reasons investors should sell American Superconductor and give my final call on the stock then.