Green Energy – Convert to the ‘Green’?
|Written by GSCR Staff|
|Thursday, 08 May 2014 07:48|
Yesterday the POTUS decided to make another one of his annual appeals to fight global warming, climate change, extreme weather events.
We wonder why he did not hold this in the rose garden right about January 15th this year. The media and the polling show very little interest in what is really a war on coal from the Obama administration. The question is will this have any impact on the markets.
2014 has been a decent year for green energy ETF in general. PowerShares Global Clean Energy Portfolio (NYSE – PBD - $12.74) is up 5.5% YTD, and Market Vectors Global Alternative Energy (NYSE – GEX - $57.92) is up 3.5% YTD. On the specialty side, the Guggenheim Solar (NYSE – TAN - $38.96) and the First Trust ISE Global Wind Energy Index Fund (NYSE – FAN - $12.74) are the big winners this year and have risen 10.74% and 9.87% respectively YTD. Certainly not all green energy ETF are not 2014 winners, but the president’s speech and the change of season have prompted the questions on individual stocks.
Back in the 4Q13 we highlighted Orion Energy Systems, Inc. (NYSE – OESX - $4.90) as a diverse small cap energy play with exposure to solar and wind alternative energy along with the LED space. The stock peaked in mid-January at $7.95, a nearly 95% jump since our blog! OESX has steadily declined since then but is still up over 21% and signs point to converting the remaining profits to ‘green’.
The simple growth valuation does not paint a green picture for OESX. The PEG ratio of nearly 6 with a forward 12-month P/E of 44 and a trailing 12-month P/E of 35 indicate overpriced. However, the Company has reasonable debt levels with about $2.5 of cash on hand per $1 in total debt. The operating and gross margins are 3.06% and 30% respectively, which is not bad for a small cap company, but lagging behind the industry norms of 10% for operating a 39% for gross margins.
We say there are two paths to the green here. First, take profits if you cannot handle what will probably be a volatile next 6 months with probably more slides. Long term the Company appears to be well run and could benefit from the political push over the next 2 ½ years from the Obama administration.
Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.
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