This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Why A123 Systems Still Not Worth It

A123 Systems (AONE) shares reached $28.20 today, implying a market cap of approximately $2 billion. This is more than double its IPO price, and triple the low end of the initial IPO offering range.

Investors are clearly placing a lot of hope in A123's technology, but are also ignoring the company's fundamentals and playing the stock for its momentum.

At the other end of the spectrum, other lithium-ion battery plays such as China Digital Communications (CMTP) are also trading out of line with their fundamentals, but are undervalued rather than overvalued.

In my last article on A123+, I questioned its valuation when it was trading around $18 per share; I received massive amounts of feedback suggesting I didn't understand the potential for A123's lithium iron phosphate technology. I responded to many of these emails with a simple question: "What revenue and margin forecasts are required to justify the current valuation of A123?" I received zero responses that actually answered the question, so I decided to construct an analysis of my own.

From the IPO prospectus, one can see that A123 has two business lines, battery products as well as R&D services. The majority of revenue and presumably the basis for growth expectations is derived from product sales, so I will confine my analysis to this part of the business.

Historical Financials of A123
1H 2009
Product Revenues
$ 28,346
$ 35,504
Cost of Product Revenues
Gross profit
% of product revenues
Total operating expenses
% of product revenues
*All numbers in US$ millions except percentages.

A few key things to note here. First, A123 has negative gross margins. Every time it sells another product, it loses a bit more money, although in the first half of 2009 it did start coming close to being able to sell its products for above what they cost, coming only 7% short. Second, even if A123 were selling its products at a profit, its operating expenses are still greater that 100% of revenue.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
HPJ $1.85 2.78%
AAPL $95.18 1.64%
FB $117.43 -0.96%
GOOG $692.36 -0.84%
TSLA $232.32 -3.92%


Chart of I:DJI
DOW 17,750.91 -140.25 -0.78%
S&P 500 2,063.37 -18.06 -0.87%
NASDAQ 4,763.2240 -54.37 -1.13%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs