This Battery Company Packs a Wallop

The battery business may be slow in developing in the U.S., but China is having no problem selling batteries as fast as it can make them. Yesterday, Advanced Battery Technologies (Nasdaq: ABAT  ) announced another profitable quarter, something A123 Systems (Nasdaq: AONE  ) , Ener1 (Nasdaq: HEV  ) , and Valence Technology (Nasdaq: VLNC  ) can't do.

Advanced Battery Technologies' revenue was up 46.4% to $25.6 million in the third quarter as demand for large-capacity batteries and scooters remained robust. Net income increased 118.8% to $11.1 million, and the company had $74.3 million in cash at the end of the quarter.

Demand for batteries and electric scooters was so strong that Advanced Battery Technologies will add capacity or pursue acquisitions, or both, to advance growth. That's a stark contrast to American battery companies, which are sitting on idle capacity waiting for demand to pick up.

Maybe most impressive was the $31.8 million in cash provided by operations for the first nine months of the year. Not bad for a company with only a $276.5 million market cap. Ener1, on the other hand, has been burning through cash and has had to offer additional shares just to keep up.

As we've seen with a lot of Chinese companies, there is always the asterisk. In the case of Advanced Battery Technologies, watch the diluted-share count, which increased to nearly 70 million from 61 million a year ago. Chinese companies are not known for being shareholder-friendly, so watch what management does closely. I haven't found any major red flags yet, but you never know when they might pop up.

The bottom line
As American companies struggle, the battery business continues to boom in China. So far it hasn't benefited shareholders, because the stock has gone nowhere in 2010, but this might be just what shareholders need to give this stock a boost going into 2011. I'm a little too skittish to pour my money into China right now, but I'll add Advanced Battery Technologies as an outperform call on Motley Fool CAPS to see where it goes.

What do you think? Is Advanced Battery Technologies a stock you would buy?

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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.

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Read/Post Comments (5) | Recommend This Article (17)

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 November 17, 2010, at 4:42 PM, mustardtree wrote:

    ABAT is my largest holding over the last couple of years and I bought more yesterday. I appreciate your article but I have a question about your comparison phrasing.

    " Ener1... has had to offer additional shares just to keep up."

    "Advanced Battery Technologies... increased to nearly 70 million(shares) from 61 million a year ago"

    Don't these both amount to the same thing?

  • Report this Comment On November 17, 2010, at 9:16 PM, TMFFlushDraw wrote:

    Kind of...

    The difference in my eyes is this. Ener1 is offering shares because it is burning through cash as it loses money and needed the cash. ABAT had convertible preferred shares outstanding which were converted into shares, still a dilution but a different motive. Below is a quote from the 3Q 2009 10Q.

    "During the third quarter of 2009, 16,500 shares of the convertible preferred stock were converted into 4,256,595 shares of common stock. As of September 30, 2009, there were 500 shares of the preferred stock outstanding."

    The difference is the desperation of the offering. At least that's my view.

    Travis Hoium (TMFFlushDraw)

  • Report this Comment On November 18, 2010, at 12:59 AM, JPDemers wrote:

    ABAT is my largest holding - but it didn't start out that way. (Let's just say I lucked out.) They seem to have their fingers on the pulse of the Chinese economy (who in the U.S. would have expected electric scooters to be the killer app for Li batteries?), and you can't do better than hitting the hot trends in a booming economy.

  • Report this Comment On November 20, 2010, at 10:04 AM, xetn wrote:

    "As American companies struggle, the battery business continues to boom in China."

    Perhaps this will help answer:

    http://shopfloor.org/2010/09/lithium-batteries-boosting-with...

    Utter stupidity: giving our tax dollars to "preferred" businesses and then setting up roadblocks to success.

  • Report this Comment On November 23, 2010, at 4:17 PM, WiseChoice4u2 wrote:

    ABAT is also one of my large holdings. The electric scooter thing holds my interest because this could be a huge production vehicle in countries where that kind of transportation is the rule. We live in Mexico and see them appearing there. They are getting expertise in an area that we should be thinking about here in the post-industrial society. Of course I have been a small motorcycle driver for 30 years in 5 different countries.

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