I'm a believer in growth stocks. As an analyst for our Motley Fool Rule Breakers service, I think you should be a believer, too. But even I have to admit some growth stories are bogus, hence this regular series.
Next up: A123 Systems
Foolish facts
|
Metric |
A123 Systems |
|---|---|
| CAPS stars (out of 5) | *** |
| Total ratings | 381 |
| Percent bulls | 89.5% |
| Percent bears | 10.5% |
| Bullish pitches | 60 out of 66 |
| Highest rated peers | Emerson Electric, Roper Industries, Cooper Industries |
Data current as of Oct. 13.
There's no doubt that batteries are key to the future of almost everything we do. Mobile phones need them. Computers need them. And most of all, electric cars need them.
Trouble is, batteries don't last anywhere near as long as we need them to. A123 is one among a handful of companies attempting to solve that problem. The difference? A123's approach involves nanotechnology. Some Fools see that as a competitive advantage.
"This is a long term speculative bet. If the new tech comes through and electric cars become the norm, A123 could be set to go through the roof. I think the stock has bottomed out after its initial IPO slide," Foolish investor davfoo wrote last month.
Certainly, A123 is acting as if its opportunity is massive. The company recently opened North America's largest lithium ion auto battery manufacturing facility in Livonia, Mich., funded partly by a $249 million grant from the feds, A123 said in a press release.
The elements of growth
|
Metric |
Last 12 Months |
2009 |
2008 |
|---|---|---|---|
| Normalized net income growth | (71.2%) | (59.2%) | (71.8%) |
| Revenue growth | 6.4% | 32.9% | 65.7% |
| Gross margin | (7.3%) | (3.0%) | (17.9%) |
| Receivables growth | 16.3% | (0.1%) | 81.9% |
| Shares outstanding | 104.6 million | 102.6 million | 7.7 million |
Source: Capital IQ, a division of Standard & Poor's.
Looking at this table, it's easy to see why federal funding was necessary. Let's review:
- Revenue growth has all but disappeared over the past 12 months, one-tenth what it was just two years ago. Ugh.
- Profits, too, are nowhere to be found. True, innovators often need time to generate positive earnings. But that's usually preceded by years of outrageous revenue growth. A123 doesn't have that. (Not yet, anyway.)
- Even receivables growth is disappointing. Why? A123 is a manufacturer that's paid when it delivers. A big receivables balance would mean loads of unfilled yet ready-to-be-paid orders.
Competitor and peer checkup
|
Company |
Normalized Net Income Growth (3 years) |
|---|---|
| A123 Systems | Not available |
|
Altair Nanotechnologies |
Not measurable |
|
Ener1 |
Not measurable |
|
EnerSys |
21.6% |
|
Johnson Controls |
(1.2%) |
|
Valence Technology |
Not measurable |
Source: Capital IQ. Data current as of Oct. 13.
I don't need to tell you how this table looks, so let's just focus on the best looking of the group: EnerSys. Not only does the company have a history of providing specialty batteries for submarines and other military vehicles, its stock appears attractively priced at roughly 12 times next year's estimated earnings.
Grade: Unsustainable
I'll grant that A123 could be on the cusp of a battery breakthrough that puts tens of thousands of electric cars on the road. As a rebel investor, I find the possibility enticing. Even so, it's tough to believe in A123's future when its financial past shows so few signs of improvement.
Now it's your turn to weigh in. Do you like A123 Systems at these levels? Let the debate begin in the comments box below. You can also ask Tim to evaluate a favorite growth story by sending him an email, or replying to him on Twitter.
For further Foolishness featuring A123 Systems:
