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Ballard Power Systems Inc (NASDAQ:BLDP) Delivers As An Arbitrage Play

Ballard Power Systems Inc (NASDAQ:BLDP) Delivers As An Arbitrage Play
Written by
Jarrod Wesson
Published on
May 4, 2017
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Last month we put out this piece on Plug Power Inc (NASDAQ:PLUG). We said that PLUG's jump should be followed by another jump in the stock of its competitor Ballard Power Systems Inc (NASDAQ:BLDP) Check the share price reaction after our article got published:SourceSeveral subscribers recently sent mails to the editorial team asking about the strategy. Consequently, the team decided that a follow-up piece in this ticker was necessary.Ballard Power's reactionThe Original IdeaIn our previous article, we mentioned that PLUG had signed an agreement with Amazon to provide its technology. Traders had pushed up the price of PLUG, but did not touch the shares of other competitors, which do exactly the same thing. Additionally, one of the competitors, Ballard, had also signed an agreement with a very big partner; Toyota Tsusho. This is from the previous piece:

"Are the other competitors preparing agreements with other partners? Yes, this is happening. Ballard, for example, signed with Toyota Tsusho a distribution agreement for Fuel Cell products in Japan. In an interview that we could find on this website, the CEO of Ballard, Randy MacEwen, celebrated the agreement stating that the agreement represents an exciting development for Ballard as well as important progress in the execution of our strategy in Japan." Source

The ReturnsAs of April 12, 2017, the BLDP's share price, when the piece was published, was $2.79. At the time of writing this article, as of May 1, 2017, the share price is $3.17. It represents 13.62% increase in less than a month.What now?In our previous article, we compared the EV/Revenue ratios of both PLUG and BLDP and concluded that PLUG was expensive as compared to BLDP. BLDP's ratio was 4.91x, whereas PLUG's ratio was 5.59x. What is the result of the calculations now? Right now, the BLDP's ratio is 5.2x and that of PLUG is 5.13x. Thus, according to the math, the trade is almost over. Those traders who wanted to profit from the short period inefficiency that we noted in our previous piece may now close the position.In addition, the other competitor, FuelCell Energy Inc (NASDAQ:FCEL), opted for a secondary raise. The fact that this competitor opted for selling shares means that FCEL's Board of Directors are taking advantage of the run and raising money at a higher valuation.Recent EarningsAre you a momentum trader?The most recent earnings of BLDP were released very recently. The company matched exactly the EPS expectations of Wall Street analysts; it reported a loss of 2 cents per share. The revenues for the 1Q 2017 were $22.7 million. This figure was lower than expected. Here are the last figures reported:

  • 2Q 2016:(0.04) EPS as expected.
  • 3Q 2016: (0.03) EPS as expected.
  • 4Q 2016: (0.010) EPS, which was better than expected.
  • 1Q 2017: (0.020) EPS, exactly as expected.
  • 2Q 2017: Market analysts expect (0.020) EPS.

Note that the EPS is increasing almost in every quarter and the analysts easily forecast the EPS? It is not only that. The technology seems to be appreciated by investors since the revenues have been increasing too in the last two years. The revenues in 2014 were $68 million, which jumped to $85 million in 2016. That is a 25% increase.The company appoints a new Vice President and Chief Commercial Officer and signs new follow-on agreementIn addition to the recent earnings release, it seems that things are moving inside BLDP. The company hired a new key business executive, Mr. Rob Campbell. Randy MacEwen commented on the new hire:

"Having previously worked with Rob in both the fuel cell and solar industries, I am very familiar with his experience as a high-performing business executive and with his extensive qualifications for the CCO role at Ballard, Rob has considerable experience in global business development, sales, marketing, product line management and service, including experience in China , Japan , Europe and the United States . He has deep knowledge of high-growth markets and engineering-based capital equipment solution sales to sophisticated customers. Rob will be a complementary addition to our executive team as we enter the next phase of market growth and corporate scaling." Source

New appointments should be considered generally as a good sign. It means that the company is able to attract new talent. Companies doing this at the top level do it in the whole organization. Hence, the company becomes more dynamic and competitive. That may be another fact to like in BLDP.On April 28, 2017 the company announced a follow-on "Technology Solutions contract with an unnamed leading global automotive OEM". In the press release, BLDP noted that it would continue to provide its experience in proton exchange membrane (PEM) fuel cell technology for future vehicle models that this client is developing. The ex Vice President of Ballard, Dr. Kevin Colbow, said the following about the contract:

"This latest follow-on contract reflects our customer's satisfaction with the measured progress we have made during the 2014-16 period to provide compelling solutions for challenging technical issues. This next phase of our collaboration with this partner sets a clear roadmap for Ballard technology being integrated into future generations of their fuel cell vehicle platforms." Source

ConclusionPicking BLDP was another great idea of the editorial team of Insider Financial. The EV/Revenue ratio of PLUG was much more expensive than BLDP. Thus, we believed that an arbitrage trade could work out. In this piece, we noted that it did. Relative value arbitrage traders can now close the position.Additionally, we added, in this article, the new developments and the recent earnings release of BLDP. We highlighted that the company is doing a great job increasing the EPS every quarter as well as increasing its revenues. Furthermore, the company is able to communicate every month new deals signed with big clients as well as maintain the dynamism of the company by acquiring new talent. Hence, in our opinion, there's still a lot to like for long-term investors. To sum up, there is a lot to like at Ballard. We will be updating our subscribers as soon as we know more. For the latest updates on BLDP, sign up below.Disclosure: We have no position in any of the securities mentioned and have not been compensated for this article.

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