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.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV