This Just In: Ameresco, Inc. Wins Another Buy Rating

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our supercomputer tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the worst...
Wednesday was a sort of good news/bad news day for shareholders of energy efficiency firm Ameresco (AMRC 0.48%). Good news: Your stock just got a buy rating! Bad news: The analyst who just recommended your stock is Northland Capital.

Sure, when StreetInsider.com reported Tuesday that Northland has begun covering Ameresco with an "outperform" rating, that was probably nice to hear. Likewise, the fact that Northland thinks this $6-ish stock will soon be worth $8. Problem is, according to our research on Motley Fool CAPS, Northland Capital's endorsement might not be worth the virtual paper it's not printed on.

I'll explain.

Let's go to the tape
At Motley Fool CAPS, we've been tracking the performance of Northland Capital's stock recommendations for more than eight straight years now. Over that time period, Northland has made 210 of its picks public -- and gotten about 62% of them wrong. On average, and based on historical data, any given Northland stock pick can be expected to underperform the S&P 500 by about 12 percentage points.

Examples? Evidence? We've got more than you can shake a stick at. These three picks, for instance:

Source: Motley Fool CAPS.

Given this record of pretty consistent underperformance among Northland's alt-energy and energy efficiency picks, how much do you want to bet that Ameresco will turn out to be the exception to the rule?

Past performance is no guarantee of future performance (we hope)
Because so far, Ameresco stock's performance has been anything but "exceptional." Over the past 12 months, Ameresco shares have lost more than 42% of their value, even as the S&P 500 has gained nearly 10%.

Ordinarily, you might expect a share price decline of this magnitude to pull the stock's P/E ratio down into the basement. But in fact, Ameresco shares currently trade for about 90 times trailing earnings. (And that's the good news. Despite positive, if minuscule, profits, Ameresco is currently free cash flow-negative, giving the stock a price-to-free cash flow ratio of infinity. According to S&P Capital IQ data, Ameresco burned through more than $34 million in cash over the past year.)

The upshot for investors
Granted, Northland isn't the only stock shop predicting a turnaround for Ameresco. On average, analysts who follow the stock still insist that it will grow earnings at 18% annually over the next five years. But even 18% growth -- if it happens -- seems too slow to support the stock's 90 P/E ratio. Factor in Ameresco's lack of free cash flow and its cash-poor, debt-heavy balance sheet, and the prospects for this stock look especially grim.

So the upshot? Northland Capital may love Ameresco, but they've been wrong about similar stocks in the past. And I think they're wrong about this one today.