Hydrogenics (HYGS) stock has swooshed up by 47% in five days despite financial misses, lower revenue and more insidious issues.
This Canada-based fuel cell company is generally unprofitable, burns about $13 million yearly and experiences quiet sales of its stock by a major customer.
The company focuses on hydrogen fuel cells for stationary and mobile uses, and hydrogen-generating products.
The company’s viewpoint is here. Meanwhile, TheStreetSweeper alerts investors to six top issues ready to burst this overinflated balloon:
*1. Major Customer- Investor Sells Stock
CommScope – not only a one-time major shareholder but also a major customer – hits the HYGS sell button … repeatedly.
Since April 11, the firm has conducted more than 40 sell transactions at prices ~10% to 40% cheaper than today’s trading level.
Just since June 1, CommScope has dumped more than 170,000 shares of HYGS!
(Source: Company SEC filing, click to see entire list)
CommScope has seen fit to cut its approximate 1.6 million shares owned in 2014 (when it sold shares for around $23 apiece) to less than 620,000 shares.
CommScope’s previous ownership exceeding 10% has plummeted dramatically:
(Source: Company SEC filing)
This may be the beginning of the end … this type of selling by a major partner – which is well-positioned to judge HYGS’ future.
*2. Analysts: No Room For Growth
The stock has recently attracted coverage of a paltry two analysts.
First, Cowen & Co., gives HYGS the rare rating of “Hold,” and a 12-month price target of $9.
Second, Roth Capital (whose coverage is generally not met with great enthusiasm) reiterated its “Buy” with an $11 price target, two bucks below the ratings given HYGS last year.
According to TipRanks, Mr. Irwin has a 46% success rate and an average return of 2.2%. While Mr. Osborne has a 38% success rate and a negative average return of –17.2%.
HYGS stock is currently nearly at the analysts’ 12-month average price target of $10 … signifying over 3% downside …
So virtually no room for HYGS to grow.
*3. Analysts Consistently Overestimate HYGS
As pitiful as analysts’ expectations are, HYGS fails to live up to those predictions again and again.
The company has missed quarterly estimates over the years by 10% to 217%:
*4. Faulty Financials
Revenue dropped dramatically … -23% for last quarter’s $8.7 million revenue (a $1.36 m miss). Earnings per share of $-0.29 missed estimates by $0.03.
Net losses continue to be a crushing problem, reaching $9.9 million for the year:
Unfortunately, the 2016 cash burn was second only to 2014:
*5. Competitive Disadvantages
Meanwhile, HYGS shows it is less efficient than about 80% of its competitors:
While competitors are making money, HYGS loses money. Despite its higher stock price, the company performs miserably in important factors compared with industry peers Servotronics (SVT) and Polar Power (POLA):
(Sources: Yahoo, E-trade, Company press release, TheStreetSweeper)
*6. Executive Enrichment
Meanwhile, executives can gulp caviar and champagne if they want to enjoy breakfast from their hot-air balloons. Their compensation last year levitated to $2.48 million.
(Source: Company SEC filing)
The hydrogen fuel company has drifted straight into the overbought zone. A lot of hot air about plans to deliver 1,000 fuel cell units to current Chinese customer Blue-G apparently helped send HYGS stock skyward, though the order may not be a new development.
Not long ago – and CEO Daryl Wilson alluded to this in the last earnings call when he said, “We’re going about it carefully with the right partners, that we don’t want them dropping the ball. We don’t want to drop the ball,” – HYGS struggled over defective parts and delayed shipments that wrecked EBITDA targets. Even if the history were better, HYGS costs will likely escalate substantially with the order and the $50 million will be years in the making, at best.
Yet the market has priced HYGS as if it’s a done deal and revenue is in hand. Instead, we believe the air is just about to pour out of this hydrogen balloon. HYGS stock is likely one pin-prick away from a 50% decline.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in HYGS and stand to profit on any future declines in the stock price.
* Editor’s Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to firstname.lastname@example.org.