In our last article about Ocean Power Technologies Inc. (NASDAQ:OPTT), the renewable energy company, we said that the company seemed quite undervalued. The stock seemed, at that time, to be an attractive opportunity. Image from the Company's websiteThe book value per share was equal to $1.26, the cash per share was equal to $1.81, and the shares were selling at about $1.30. Additionally, the amount of shares short was quite large; 33.51% of the float. We said that the share price may jump up and we could see a short squeeze.Have a look at what happened recently. The share price jumped up to more logical share price levels. In only a few days, the price went up to touch the $2.50 level delivering more than 100% stock returns to patient market participants.On top of it, more than 40 million shares changed hands, which means that many in the market became suddenly interested in this company. Two months chart for OPTTWhat happened?The company announced that it will commence to offer shares of its common stock for sale in a best efforts public offering. The reaction of the market was exact at the time this news was out, thus we researched what this capital raising will mean for OPTT. Additionally, we will review the financial reports recently released.Let's provide some background for those who are getting to know the company here. Ocean Power was created in 1984 and develops and commercializes systems that generate energy from the ocean waves. The most significant clients are government agencies interested in the development of renewable energy for their countries.Recent DevelopmentsOn July 25, 2017, the company announced that it decided to move to Houston, Texas to support the company’s oil & gas business development activities more effectively. David Marchetti, OPT’s new Director of Global Applications, will be in charge of dealing with business development in Houston. According to the press release, the new business executive brings 28 years of accumulated expertise in the oil and gas industry. We believe that the following words of George H. Kirby, President and CEO of OPT, are the key to understand how important will be the expansion to Houston:
“Our expansion to Houston is a direct reflection of the interest level we’re seeing in the oil and gas industry, as well as in other industries targeted for our products and services. Having a presence in Houston’s vibrant oil & gas hub is a critical part of serving prospective U.S. and international customers." Source
On September 8, 2017, the company announced results for the first quarter of fiscal year 2018 ended July 31, 2017. According to the press release, the quarter results were in line with company's expectations, thus the market did not seem to react to the news.In the operations review, it was highlighted that the company exhibited its PB3 commercial unit to customers and end users at the Offshore Technology Conference. It is said to be the largest global offshore oil and gas event in the world, thus we appreciate the company's presence. OPTT is working on industry awareness, which is usually good for the share price in the long run.Regarding the financial figures, the company reported $195,000 in revenues for the quarter, which is approximately the same amount obtained for the same quarter last year. Mitsui Engineering and Shipbuilding and the Department of Defense Office of Naval Research were the clients that contributed to these revenues. Additionally, it was noted that the company did not report positive net income for this quarter, which is usual for an innovative and early stage operator.Regarding the balance sheet, the company highlighted $12.0 million in cash, and $515,000 in restricted cash. Thus, the company continues to show large amount of cash sitting on the balance sheet. It is equal to $0.92 cash per share. Regarding the book value per share, it is equal to $0.88.Additionally, the raising of $7.2 million on a public offering of its common stock on May 2, 2017 was also noted. We appreciate that the company is able to keep funding its operations.Finally, on October 18, 2017, the company noted that it intends to offer shares of its common stock for sale in a best efforts public offering. A preliminary prospectus supplement and accompanying prospectus related to the offering will be filed with the SEC and will be available on the SEC's website.What's our take?We believe that the company is finding new opportunities to allocate cash. It's the message that the market seemed to receive. We need to wait until the company reports the amount of money received and the amount of shares sold. This is very important, as some dilution risks will exist and the share price could decline. However, we believe that future growth will offset dilution.Conclusion Currently trading with a market cap of $24 million, OPTT is an exciting story among small caps. With large amount of cash on the balance sheet, $12 million in current assets and only $3 million in liabilities, in our opinion, the company is still a value-play.Additionally, we continue to see that the short position is quite large; 49% of the float. A short squeeze may continue, which would send the share price even higher.To sum up, be alert on the results of capital raising and continue checking the short position. These are the two factors that will drive the share price dynamics in the near future.Be sure to check out our coverage on OPTT.We will be updating our subscribers as soon as we know more. For the latest updates on OPTT, sign up below!Image courtesy of Cuba Gallery via FlickrDisclosure: We have no position in OPTT and have not been compensated for this article.
Discover Hidden Gems
Don't miss the next big opportunity. Subscribe for timely alerts on potential market movers.
