Friday, November 01, 2013

Pull Up a Deck Chair, Save the Environment

Most of our focus is on alternative energy developers.  However, our environmental and power worries can be at least partially solved by conservation.  Use less power and we burn less fossil fuel and emit fewer carbon dioxide.  Thus several groups in our four alternative energy indices include companies where recycling and up-cycling are at the heart of their business models.

Advanced Environmental Recycling Technologies (AERT:  OTC/PK) recycles waste plastics and turns them into ‘green’ building materials.  Its composite materials are used for decking planks, balusters and handrails as well as trims and facing for finishing and remodeling.  By taking polyethylene that would otherwise go to waste and repurposing it to a useable material, Advanced Environmental saves landfill space and reduces the need to turning more petroleum into plastic composites.

ChoiceDeck Branded Decking Made from Recycled Plastics
In the twelve months ending June 2013, the company reported as small loss of $1.6 million on $72.2 million in sales.  Even though Advanced Environmental has got a fat profit to brag about, its operations do generation cash flow  -  $4.7 million in those same twelve months.  Over the last four and a half years the company’s operations have produced nearly $3.0 million in cash, an accomplishment that many investors might have missed if they only looked at the net losses in those years.

The omission has left AERT trading at pennies per share.  The closely held nature of Advanced Environmental might one of the obstacles to fair valuation.  Insiders own about a third of the ninety million or so shares outstanding.  Trading volume is shallow  -  no more than 40,000 shares per day.  A wide bid-ask spread is an issue, but at such a modest share price the capital commitment will look more like an options contract that a direct equity stake.
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.



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