Superconductor Tech's Eye-Popping Rally

Updated on Feb. 3 to clarify details of the expiration of a lock-up period related to the company's recent secondary offering.

NEW YORK ( TheStreet) -- Shares of Superconductor Technologies ( SCON) have nearly doubled in the past two sessions on news the company successfully produced second-generation samples of its high temperature superconducting, or HTS, wire products.

The news, announced prior to Tuesday's opening bell, brings the company one step closer to potentially securing forward-supply contracts. Superconductor expects to begin deliveries of the samples shortly. The samples meet customer requirements for power transmission cables, fault current limiters, and wind turbine generators, Superconductor said.

The stock finished Wednesday's regular session at $2.93, up 91 cents, or 45.1%. Volume of 6.5 million was more than 60 times the issue's trailing three-month daily average of around 105,000. That jump followed a gain of more than 30% on Tuesday as the shares surged 49 cents to $2.02 on volume of 2.3 million.

MDB Capital Group, the only firm covering the stock and also one of the underwriters of a $6 million stock offering that Superconductor completed back in September, issued a bullish note in the wake of the news, keeping its buy rating intact.

"From a timing viewpoint this achievement is in line with our expectations and management guidance, as we estimated that 2G HTS wire samples for these three targeted markets would be available for sampling by potential customers at the end of 2010 or very early in 2011," MDB Capital writes, adding later that it believes the company could ink contracts with one or more customers because the majority of competitor American Superconductor's ( AMSC) manufacturing capacity is already spoken for.

The firm thinks the validation of Superconductor's technology that would come from the receipt of one or more customer contracts could be an turning point for the stock, which until this week had languished below $2 since August and hasn't cracked $5 since June 2009.

"We believe that such an event would also likely trigger a new level of investor interest that the company has not experienced for a number of years," MDB Capital states.

Where the stock goes from here, of course, is the real test, and Feb. 21 is a date to pay attention to. Superconductor is not only slated to issue its fiscal fourth-quarter results then, a 180-day lock-up period related to its most recent secondary offering is also set to expire. While outside investors in the offering weren't subject any lock-up related to the sale of 4 million common shares at $1.50 each, certain company executives were subject to individual agreements.

When Superconductor last opened up its books, there was plenty of red ink for investors to deal with and whatever numbers the company turns in for the fourth quarter aren't likely to be very inspiring, given the focus on the 2G HTS wire product development. For the three months ended Oct. 2, the company reported a loss of $3.4 million, or 14 cents a share, wider than a year-ago equivalent loss of $1.8 million, or 8 cents a share. Revenue declined sharply to $2 million in the quarter from $4.3 million last year.

For its part, MDB Capital offered a bold view of the heights it believes the stock could scale.

"At the present time we believe a technology based valuation is an appropriate valuation and we are using a conservative technology value at $250 million," the firm says. "With roughly 27 million shares, a $250 million value equates to about $9.00 per share."

MDB Capital continued: "We believe this number should be discounted by a significant factor to account for the risk that the company is unable to commercialize its HTS wire process. We are applying a discount of 40% to account for this risk, producing a current fair value of roughly $6.75."

-- Written by Michael Baron in New York.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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