It's not "now or never" for energy tech company American Superconductor (NASDAQ:AMSC), but the music has started playing in the game of musical chairs for electrical utility suppliers. After years of underinvestment in transmission and distribution infrastructure, utilities seem finally ready to begin an upgrade cycle. If this little company can position itself in the right place at the right time, it won't be a little company for long.
I'm not going to get worked up about the financial report for the company's second quarter. Yes, revenue was up 14%, and the operating loss was higher, but I don't really care. The story isn't current growth, but whether the company has the cash and is making the technological progress to see growth later. Cash burn for the quarter was about $7 million, against more than $70 million in cash and investments.
There are three primary aspects to consider here: the respective futures of the company's power electronics systems, electric motors, and superconducting wires. Although I don't mean to dismiss the motors opportunity out of hand, I'll be skipping over that today.
The electrical utility business is what really has my attention here. The company already sells equipment that helps monitor and control the flow of electricity, improving reliability. It's got a strong partner in General Electric (NYSE:GE), and given the somewhat recent blackouts and the mandates in the energy bill for more reliable power systems, there could be a definite opportunity for American Semiconductor here. However, competitors like ABB (NYSE:ABB) and Siemens (NYSE:SI) will also be grabbing as much business as they can.
Superconducting wires, though, are the real sizzle. The wires can carry considerably more current (about 140 to 150 times that of a normal wire), but they're presently expensive and hard to manufacture, and customers are uncertain about their reliability and price efficiency. While rivals like IntermagneticsGeneral (NASDAQ:IMGC) and Hitachi (NYSE:HIT) have also had good lab-test results, the ability to manufacture these wires economically will be the real key to success. American Superconductor isn't quite there yet, but then, neither is the competition.
There are 160,000 miles of power lines in this country, and while not all of those are suitable for superconducting wires, the market potential in urban areas should be considerable. Still, this is a race to meet affordability standards and stay ahead of competitors -- without running out of cash.
American Superconductor is an exceptionally risky stock whose outcome will likely be binary -- you'll win big or lose big. I've owned this stock profitably in the past, and I still want to believe that they'll achieve the necessary price and performance standards in time to take advantage of the utility upgrade cycle. There will be fits and starts with this company from quarter to quarter, but they still might have what it takes to put a little juice in your portfolio.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
