chaiyapruek2520
I was attracted to American Superconductor (NASDAQ:AMSC) in June as they implemented a superconductor loop in Chicago to enhance grid reliability. This was interesting, but there were a lot of other projects in the company that made less sense to me. Here I revisit AMSC after checking out the Q2 2022 (for July through Sept 2022) earnings report in early November.
While the company clearly has some great technology, it seems unable to get itself into a position where it is profitable. The company was formed in 1987 and has lost more than $1 billion. Its excellent products for grid control are not profitable, and acquiring two struggling businesses may not have been the best idea, or at least not well-timed.
November Q2 2022 earnings call
Given an upbeat Seeking Alpha report on AMSC in August 2022, it was interesting to see if AMSC performed as anticipated in the July through September 2022 period. In a nutshell, the business financials have not improved year over year, with most metrics similar to or worse in comparison with Q2 2021; notably revenues were $27.7 million (Q2 2021 revenues $27.9 million), gross margin was 7% (Q2 2021 gross margin was 12%), R&D and SG&A expenses were $9.7 million (Q2 2021 R&D and SG&A $9.4 million), net loss was $9.9 million (Q2 2021 net loss was $4.4 million), Q2 2022 cash was $37.4 million against $43.1 million in Q1 2022.
Guidance projects a worsening of the situation, with Q3 2022 (October through December 2022) revenues projected at $22-$26 million.
Company performance versus market conditions
The devil is in the detail sometimes when looking at a company’s performance. In the quarterly report, it was noted that the renewables market is performing well with wind power projections growing year over year in the wind markets (US, UK, and India) that AMSC serves. This is not necessarily the same as AMSC’s prospects for these wind markets, nor indeed is the wind industry in great shape currently, notwithstanding signs of resurgence. In the current quarter (Q2 2022) AMSC’s wind business decreased 40% over Q2 2021 results (which were in turn down 42% over the previous 12 months). Are the AMSC wind products competitive with those offered by the big wind players? The problem seems to be that AMSC’s wind partner keeps delaying ordering hardware. Maybe the partner isn’t strong enough to compete at a time of great challenge in the wind industry?
AMSC claimed similar general tailwinds in the semiconductors and mining, metals and materials areas. The figures provided address the generic wind power, solar PV, electric vehicles business areas. It wasn’t clear how these favourable business conditions are going to impact AMSC’s business. AMSC may well have interesting products to serve increased activity in a number of areas over the next 20 years, but I didn’t see clear evidence that its products are making commercial progress in these areas.
The Resilient Electric Grid REG system in Chicago
The superconductor REG system is now installed and operating in Chicago. This is the product that attracted my interest in AMSC. It is excellent that the system is now operating, but of more concern is that there seems to be no indication of further placements of the REG system. The following statement from CEO Daniel McGahn was of concern to me: “We continue to see strong desire from this utility (Chicago) as well as others to further deploy REG into the power grid. It is clear, at least to us, that REG offers the capability and functionality to solve some of the nation’s current critical grid infrastructure problems right now.” The point is that customers are the ones who need to place orders. Is the REG too expensive?
Conclusion
AMSC started 2021 with a share price at $30, but it has been pretty much downhill since, closing at $3.91 yesterday. Year-on-year, the share price is down 75.8%. An investor needs to have a powerful story to stay interested with this record, and I’m not sure that there is one. Coverage of AMSC is minimal but strongly supportive, with one Seeking Alpha author in the past 60 days giving a strong buy rating, while there are three Wall Street ratings (two strong buy, one buy) in the past 90 days. My above comments indicate that I find it hard to make a case for investment in AMSC currently. For existing investors, things are so tough that perhaps it is a time to hold on for a turnaround?
I am not a financial advisor, but I follow closely dramatic changes happening with everything becoming electrified as we enter the end of the fossil fuel era. I hope that my commentary is of some help as you and your financial advisor consider possible investment in AMSC.
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