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Why This $3 Energy Stock Soared Today

By Neha Chamaria – Aug 18, 2021 at 4:30PM

Key Points

  • Orbital Energy Group's revenue is soaring but it's still far from profitability.
  • Management projects better times ahead as the solar industry recovers and investment in 5G technology picks up.
  • B. Riley believes a lead in solar will take Orbital Energy far.

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An analyst expects Orbital Energy Group shares to double.

What happened

Shares of Orbital Energy Group (OEG 2.47%) are soaring Wednesday, trading up 11% as of 2 p.m. EDT. Funnily enough, an analyst reduced its price target on the energy services stock this morning, but investors seem to have found something to like nonetheless.

So what

All eyes were on Orbital Energy's second-quarter earnings release as investors hoped the company will provide some guidance about its path to profitability, especially after it won a big contract in July. Orbital Energy operates a group of subsidiaries, including:

  • Orbital Power Services
  • Orbital Solar Services
  • Orbital Telecom Services, and
  • Orbital Gas Systems.

The first three combined accounted for 70% of the company's revenue in Q2. As expected, total revenue increased 110% year over year to $16.3 million in Q2, thanks to contribution from private telecommunications services company Gibson Technical Services, which was acquired in April. More notably, Orbital Energy's backlog value rose to $294.9 million. For perspective, the company ended 2020 with a backlog value of only $40.4 million.

What wasn't expected, though, was a wider loss despite a growing top line.

Workers installing solar panels.

Image source: Getty Images.

Orbital Energy's operating loss shot up to $18.3 million from $7.2 million in the year-ago quarter for two reasons: a sharp dip in revenue from Orbital Solar Services, and significantly higher expenses incurred on equipment purchases and hiring for Orbital Power Services.

To be fair, lower revenue from the company's solar subsidiary is broadly in line with what most solar companies are facing. The solar industry is facing a crunch in supply of critical material, including steel, aluminum, polysilicon, and semiconductor chips. With prices of raw material like steel and aluminum also touching multi-year highs, solar companies have had to postpone projects and delay deliveries in recent months. That was bound to hit Orbital Solar Services, which provides engineering, procurement, and construction services to the solar industry.

Earlier in the year, B. Riley Securities upgraded its rating on Orbital Energy stock to buy with a price target of $12 a share, as it believed Orbital Solar Services was emerging as a "market leader in solar farm construction." B. Riley's views have softened since, and this morning, it reduced its target price to $6 per share while retaining a buy rating.

Now what

Orbital Energy shares were trading below $3 a share this morning, which means B. Riley still expects the stock to double. That, coupled with management's expectations of stronger revenue growth in the second half of 2021 even as spending on energy and telecommunications infrastructure is about to take off under the Biden administration, drove the stock higher today.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Orbital Energy Group Stock Quote
Orbital Energy Group
$0.22 (2.47%) $0.01

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