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 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.

It's a bird. It's a plane. It's American Superconductor!
Yesterday was a big one for stock market bulls, but one of the loudest "booyahs" of all came from shareholders of American Superconductor (Nasdaq: AMSC). A pair of analyst endorsements -- one old, one new -- helped American Super's stock leap 4% in a single bound. Judging from where prices seem headed so far, it looks likely to fly higher today as well.

What's got analysts and investors alike so excited? The stockpickers at ThinkEquity initiated coverage at "buy" yesterday, calling American Super "a play on cost-effective value capture and unit growth in wind and renewables, levered to Asia and the developing world."

Basically, ThinkE's saying American Super is an alternative energy stock -- no real surprise there. I'm more interested by ThinkE's endorsement of "the company's strategy of licensing wind turbine designs and selling components ... [which] allows the company to focus capital on technology and system optimization without the distractions of running factories or engaging in market development in multiple countries." You may be surprised to hear this, coming from a longtime American Super-skeptic like me, but I agree.

I'm not a huge fan of the company. Frankly, I'm also less than impressed with ThinkEquity's hit-or-miss record of picking Electrical Equipment stocks:

Companies

ThinkEquity Says:

CAPS says:

ThinkEquity's Picks Beating (Lagging) S&P By:

Power-One (Nasdaq: PWER)

Outperform

**

184 points

SunPower (Nasdaq: SPWRA)

Outperform

***

(91 points)

But as it turns out, ThinkEquity is right about this one thing, at least. American Super's new strategy is helping to mitigate its perennial free cash flow problems. No longer burning cash, American Super generated $13.2 million in free cash flow over the past 12 months. That's trending down from what it did last year, but a positive's still a positive.

Who says subsidies are bad?
What's more, an even better analyst -- Wall Street wunderkind Wunderlich -- backed up ThinkEquity's hunch yesterday. And while it's true that Wunderlich's record in the EE sector isn't any better than ThinkE's ...

Companies

 

Wunderlich Says:

CAPS says:

Wunderlich's Picks Beating (Lagging) S&P By:

GT Solar (Nasdaq: SOLR)

Outperform

***

58 points

American Super

Outperform

**

(16 points)

First Solar (Nasdaq: FSLR)

Outperform

**

(22 points)

... there is one thing going for it (at least from the perspective of American Super shareholders). If ThinkEquity likes American Super today, then Wunderlich downright loves it. Reiterating its "buy" rating on the stock, Wunderlich promised investors something very close to a "double" as the stock rises to the oh-so-wunderful price target of $50.

Simply put, Wunderlich believes American Super "represents one of the best opportunities in a U.S.-based alternative energy company." But that's just the smallest point of the buy thesis. According to Wunderlich, "the Chinese government is helping finance wind farms in North America, provided they use Chinese-made wind turbines," as opposed to turbines manufactured by American companies such as domestic turbine leader General Electric (NYSE: GE).

But what's bad for GE might well be "a plus for AMSC as its electrical components are inside the wind turbines made by the number 1 and number 3 largest Chinese wind turbine makers. The state-run financing is not organized and is not yet widespread, but it is not widely known to be going on."

Foolish takeaway
So to sum up, Wall Street likes American Superconductor for two main reasons: 

  • A super-secret, disorganized, spotty, and probably accidental effort on the part of China to subsidize American Super's business.
  • One good year of strong free cash flow that's already starting to sag, with the promise (from a pretty mediocre analyst) of improvement to come.

Call me a pessimist, but this seems an awfully thin reed to support American Super's stock price, which is swaying in the wind now at a sky-high 54-times multiple to earnings, and nearly 100 times free cash flow.

My advice? Don't step on Superman's cape. Don't spit into the wind. And don't overpay for a growth stock, no matter how big the hype.

Rich Smith does not own shares of (nor is he short) any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 548 out of more than 165,000 members. The Motley Fool has a disclosure policy.

First Solar is a Motley Fool Rule Breakers selection. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.