Even if newly public battery maker A123 Systems ( AONE) soars in the aftermarket, don't feel too bad about being left out of the IPO party, because there are much smarter ways to play the lithium-ion battery market.A123 Systems priced its $378 million IPO Wednesday night, selling 28.1 million shares at $13.50 each, and the stock began trading Thursday. It closed at $20.29, up $6.79 for a 50.3% gain. Shares were down 10 cents after hours. The company increased the deal size by almost 10% even after raising the offering price by 50% from the initially indicated range. Like China Bak Battery ( CBAK), A123 is a money-losing company trading on an excessively high valuation. Profitable alternatives such as Advanced Battery Technologies ( ABAT), China Sun Group ( CSGH), Hong Kong Highpower Technology ( HPJ) and China Digital Communication Group ( CMTP) all make for a better fundamental investment. In evaluating this IPO, I am a very biased investor because I refuse to invest in money-losing companies. When a company is being well received by investors because its "losses are declining," I don't feel too bad about not being part of the IPO party. A123 does have an impressive client list, including Chrysler and Black & Decker ( BDK). However, A123 has generated only $168 million in revenue since being founded in 2001. On revenue of $168 million, the company has lost $146 million since founding. I repeat, on revenue of $168 million since 2001, the company has lost $146 million. Comparing A123 to its rivals shows that A123 got one spectacular deal from its IPO price. A123 will have an initial market cap of around $900 million. Compare this to money-losing CBAK, which now has a market cap of $230 million. CBAK has generated revenue of $225 million in the past 12 months. Over the past year, CBAK has lost about $10 million. Clearly, losing money is now the new trend in investing because CBAK soared 30% yesterday on news of the A123 IPO success.
I think ABAT is a much better investment. With a market cap of $268 million, ABAT trades at only 13 times trailing 12 months'earnings. (yes, that's right, earnings). ABAT was recently awarded a $3.4 million contract for electric vehicles. Despite being a profitable way to play the lithium-ion/electric vehicle market, ABAT rose only 3% yesterday. China Sun Group ( CSGH) is in the testing phase on lithium iron phosphate, the same product that is giving A123 such a valuation boost. CSGH rose to a new 52-week high yesterday above $1.50 based on the A123 sentiment. CSGH is profitable, cash-rich and debt-free and trades at only nine times earnings. Notice that A123 includes Black & Decker among its notable customers. Black and Decker is not a vehicle manufacturer, but a hand-held-device maker. As a result, comparing to other small-size lithium ion battery makers (i.e., batteries for hand-held devices) is also appropriate. HPJ is a leading supplier of nickel metal hydride batteries, and is moving into the lithium ion space. After its recent 50% run-up, the company trades at 17 times earnings, but is profitable and debt free. HPJ rose as much as 10% yesterday. CMTP, now known as New Energy Systems Group, is profitable, cash rich and debt free and is rapidly expanding in the lithium ion space, but still trades at a P/E of only four times TTM earnings. CMTP also rose nearly 10% yesterday. A123 may have fantastic technology and a great client list, but until it can demonstrate a clear path toward sustainable profitability, I think it is meaningless as an investment. If A123 were a $100 million company with great prospects, it might be worth some kind of speculative punt. But at $900 million?! Don't feel bad about missing out on this IPO. In addition to TheStreet.com, I also can be reached at
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