Small Cap Strategist is published by Crystal Equity Research an independent research resource on small capitalization stocks. Follow along as we discuss the most recent trends in the small-cap sector, investigate interesting companies and pan a few not-so-promising stocks.
Everybody likes a
bargain.Investors really like a good
cheap buy.A review of our four
alternative energy industries revealed several stocks trading below industry average
multiples of forecasted earnings.
the geothermal power generators has frequently taken us to the door of Ormat Technologies, Inc.
(ORA:NYSE).Ormat has two revenue segments:power generation through geothermal
generators and energy recovery and equipment sales to utility and industrial
customers installing geothermal power plants.The company owns and operates plants with 626 megawatts generating power
and has supplied equipment around the world for another 1,200 megawatts.The development pipeline is populated by
thirty-five potential geothermal locations in the U.S., Southeast Asia, South
America and New Zealand.
week during the company’s third quarter 2014 earnings conference call management
spent quite a bit of time talking about two of its newest projects.The company was recently awarded a $22.3
million contract to install its proprietary air-cooled energy converter at a
natural gas compression station in Utah.The station is part of the Kern River gas transmission system.This will be the second recovered energy power
generation facility on the pipeline.The
recovered energy plants eliminate reduces the use of energy content of the
natural gas by about 30%.
also recently signed an agreement to design, construct and operation a 35
megawatt geothermal power project in Kenya.Once completed Ormat will also arrange for financing and expects take
advantage of guarantees from the African Development Bank.Kenya Power and Lighting Company has agreed
to buy all the power from the project.This will be Ormat’s fifth power project in Kenya.
have to pony up about twenty times projected earnings per share to take a long
position in ORA.That is a bit richer than
the average PE multiple for the S&P 500, which is 16.7 times forward
earnings for the group, but right on par with the forward earnings ratio for the
Russell 2000 Index.The geothermal
segment of the power generation industry is trading at approximately 21.2 times
the surface the comparison of earnings multiples does not make ORA look like
much of a bargain.However, Ormat is set
apart from the group.ORA is among the
most stable of the power generation stocks. True enough, utility companies are
known for their stability in both earnings and stock performance.However, it is rare to observe fast rates of
growth and low beta measures of risk.ORA offers both-a beta of 0.80 and forecasted earnings
growth of 22%.Thus ORA could trade at a
multiple of 22.0 times earnings.On a
risk adjusted basis, ORA’s PE/Growth or PEG ratio is a compelling 0.73.
Ormat recovers some power of its own from its revenue in the form of operating
cash flow.In the most recently reported
twelve months the company converted 43% of sales to operating cash flow.Cash flows help support capital investments
and a small dividend of $0.20 per share.The forward dividend yield at the current price level is 0.7%. Taking the dividend into consideration,
provides a risk adjusted PE/Growth Plus Yield of 0.70
a technical standpoint, ORA is neither overbought or oversold.There is no strong trend higher or lower
other than the short-term vacillations in the stock price.Nonetheless, money appeared to have been flowing
into the stock in the run up to the third quarter 2014 earnings announcement. Investors
who want to take a long position in ORA might wait for the signs of upward
momentum before committing capital or simply use the dividend payments as
compensation for the time commitment.
Neither the author
of the Small
Cap Strategist web log, Crystal Equity
Research nor its affiliates have a beneficial interest in the companies