Tuesday, June 10, 2014
Forcefield in Name Only
One of the companies in our novel alternative energy indices is Forcefield Energy, Inc. (FNRG: Nasdaq). For a time it was listed as among alternative chemical products and now is included among waste-to-energy developers, but it could be as easily included in our data base among sellers of LED lighting products. The identify confusion is due in part to Forcefield’s own description, which includes a laundry list of capabilities and technologies.
The company lays claim to proprietary products for heat recovery and the conversion of waste heat to useful purpose. Forcefield comes by this capability though a 50.3% interest in TransPacific Energy based in the U.S. Forcefield is also a distributor of LED lighting from LightSky, a China-based LED manufacturer. Another China-based subsidiary is involved in the production of trichlorosilane, a chemical that is used in the production of polysilicon for photovoltaic cells. That subsidiary was sold in February 2014.
Forcefield management describes the company as “a new force in the field of energy.” Certainly with all these energy-related interests it seems formidable, at least until an investor looks at the company’s financial performance. With the chemicals business out the door, revenue has been shrunk down to just $295,250 in the most recently reported twelve months and the company lost a net $2.1 million. In the same period Forcefield burned up $3.8 million in cash to support operations.
FNRG shares are now trading at a multiple of 290 times sales - a valuation which is probably not sustainable. Forcefield management has a challenge before it. It is understandable, in the interests of building a ‘clean, green’ business model, why management would divest of a messy chemical operation. However, neither its waste-to-energy business nor the LED lighting sales are sufficient to make up for the chemicals revenue. New strategic relationships hold considerable promise, but none have delivered significant new revenue.
Forcefield Energy made an appearance at the Marcum Micro-cap Conference in New York two weeks ago. It is well that management is making an attempt to bring investors up to date on the strategic changes in the company’s business model. Management was to win new shareholders, but it might be premature to take a position in stock sitting well above its sales value.
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. Forcefield Energy (FNRG) is included in the Waste-to-Energy Group in the