After surging in recent months, EnerNOC (NASDAQ: ENOC ) shares have sputtered out again. Developments concerning a major customer underline the evolving landscape for a company like this one. Right now, investors aren't exhibiting much demand for this demand response company.
Some shares of EnerNOC have been hanging out in the real-money Prosocial Portfolio I have managed for Fool.com, with the initial purchase in March 2011. If you check the stock returns for the portfolio, you'll see it hasn't been one of the winners.
Over the years, EnerNOC has been the poster child for stock moves hinged on... well, usually nothing. I recall the surge of pessimism after my initial purchase because of regulatory concerns and disagreements with its major customer (and major U.S. power grid operator), PJM.
After those situations stabilized, though, the clouds over EnerNOC simply refused to lift, regardless of what was actually going on in the business. The stock fell into the single digits, and it seemed that no good tidings mattered at all.
The stock price recently recovered for a while, having hit about $19 per share. It recently fell to $13, as an analyst downgraded the stock -- and of course, we Fools take analyst opinions with a healthy pinch of salt.
However, cue up PJM again. EnerNOC recently disclosed that disappointing clearing prices in PJM's capacity market will come into play in 2016 and 2017. Basically, competition in consumer power capacity for PJM is arising through increased output from natural gas plants, depressed demand due to economic sluggishness, and increased imports from western competitors.
EnerNOC offers a counter to the PJM situation by pointing out its $1.6 billion in total contracted revenue, as well as its continued expansion into other revenue streams and geographical areas, putting fewer eggs in one proverbial basket.
As long as we're talking risk, we might as well reiterate that even outside of situations like this, which are beyond anyone's control, EnerNOC also has powerful opponents in the smart grid area. It can count Comverge, Exelon (NYSE: EXC ) (check out its subsidiary, Constellation Energy, which has all kinds of green initiatives going on), and Hess (NYSE: HES ) as competitors, as well as energy tech concerns like Lucid Design Group, Building IQ, and SCIEnergy. Utilities themselves sometimes create and use their own demand response solutions, which also lessens business for companies like EnerNOC.
Even massive conglomerate Honeywell (NYSE: HON ) has delved into the demand response and energy efficiency arena. In March, Honeywell teamed up with Opower to provide an integrated energy management platform with five utilities, including PG&E (NYSE: PCG ) , to test-drive the relatively untapped residential market.
EnerNOC is obviously still risky, but the recent burst of pessimism opens up an opportunity for investors to buy, if they're not too risk-averse or have an adequately diversified portfolio that can take on a risky play like this one, which may deliver huge rewards over the long haul as the landscape evolves.
Having looked at EnerNOC's quarterly results recently, I found promising positive news. The PJM news hadn't hit my radar yet, but I'm willing to give weight to EnerNOC's expansion efforts into other revenue channels for its technological solutions.
EnerNOC's venturing into the agricultural irrigation load control business is significant. The water-energy nexus is increasingly a topic for concern and action, as well as an opportunity for corporate problem-solvers. EnerNOC's expansion into this area is good for both environmental reasons and for other applications for its technology.
Although EnerNOC is still not profitable, its 34.4% increase in revenue and its positive margin bump in its most recent quarter belie its recent fall from grace with investors. Obviously PJM is still a significant customer; fortunately, EnerNOC has reduced that significance. PJM represented 40% of revenue as of 2012, compared to 60% several years ago.
Insider purchases can be a heartening signal, too. Arthur Coviello, Jr., one of EnerNOC's directors, recently bought a sizable chunk of EnerNOC shares. Maybe he's also feeling as though the recent drop in the share price is simply overdone.
The smart grid is getting smarter
Sometimes it pays to add more shares to your position on a stock price brownout. In EnerNOC's case, I believe there have been enough positive changes to add upside, and the current negative sentiment provides another chance to buy.
Meanwhile, the "smart grid" is finally approaching closer to the mainstream. EnerNOC's technology for helping further the smart grid is a very Prosocial Portfolio idea, even if the increasing demand for such services introduces more competition, including from the "big guys". When big competitors start stomping around, your basic business becomes justified. The risk is there, but big long-haul rewards may be, too.
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