American Superconductor Corporation: Why This Contrarian Micro-Cap Can Triple

American Superconductor Corporation (NASDAQAMSC) Why This Micro-Cap Can Triple
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American Superconductor Corporation Faces Hurdles but Great Upside If Successful 

Scouring through my database of beaten-down former high flyers, my search yielded American Superconductor Corporation (NASDAQ:AMSC), a micro-cap that is down 50% from its 52-week high of $16.44.

AMSC stock traded as high as $439.50 in January 2010, so there previously was plenty of hype surrounding the company.

Consider that American Superconductor stock traded as low as $2.89 in August 2017. So if you don’t like volatility, AMSC stock probably wouldn’t suit you.

For aggressive traders looking for a high risk/reward trade, AMSC stock could return some nice gains if the company can turn things around.

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American Superconductor’s business comprises technologies used to produce cleaner and more efficient energy. This includes wind turbine electronic controls and systems, along with electric grid system solutions.

At first glance, the company appears to be in promising areas. This helped propel its stock price to its high, but execution has clearly been problematic, as the company has been burning through cash with consistent losses.

The chart of American Superconductor stock shows the collapse in 2010. Yet there appears to be a bullish major double bottom in place, with bottoms in 2015 and 2017.

Chart courtesy of StockCharts.com

If the company can deliver some good news to the market, there is no reason why its share price cannot double. Of course, failure could trigger another setback for American Superconductor stock.

Here’s How AMSC Stock Can Rally 

American Superconductor’s revenue history over the last five years has been horrendous. But the optimistic view is that the company produced higher revenues in fiscal 2019 than in the prior year.

Fiscal Year Revenues (Millions) Growth
2015 $70.5
2016 $96.0 36.1%
2017 $75.2 -21.7%
2018 $48.4 -35.6%
2019 $56.2 16.1%

(Source: “American Superconductor Corp.,” MarketWatch, last accessed October 18, 2019.)

While the improvement is encouraging, we need to see consistent revenue growth in order for investors to feel confident.

Revenues are estimated to rise by 7.2% to $60.3 million in fiscal 2020 and follow that with a bigger increase of 39.1% to $83.8 million in fiscal 2021. (Source: “American Superconductor Corporation (AMSC),” Yahoo! Finance, last accessed October 17, 2019.)

American Superconductor has yet to produce positive earnings before interest, taxes, depreciation, and amortization (EBITDA), but the loss has narrowed.

Fiscal Year EBITDA (Millions) Growth
2015 -$30.8
2016 -$11.4 63.1%
2017 -$20.0 -76.2%
2018 -$19.0 5.1%
2019 -$13.6 28.3%

(Source: MarketWatch, op. cit.)

An encouraging sign for American Superconductor was a move to generally accepted accounting principles (GAAP) earnings per share (EPS) profits in fiscal 2019.

Fiscal Year GAAP Diluted EPS Growth
2015 -$5.74
2016 -$1.76 69.3%
2017 -$1.98 -12.5%
2018 -$1.73 12.6%
2019 $1.29 174.6%

(Source: MarketWatch, op. cit.)

On an adjusted basis, however, AMSC lost $0.64 per diluted share in fiscal 2019, and the company looks to be a few years away from profitability on an adjusted basis.

Estimates call for American Superconductor to report an adjusted loss of $1.14 per diluted share in fiscal 2020 but narrow this loss to $0.63 per diluted share in fiscal 2021. (Source: Yahoo! Finance, op. cit.)

Free cash flow has largely been negative, prior to a positive reading in fiscal 2019.

Fiscal Year Free Cash Flow (Millions) Growth
2015 -$33.4
2016 -$5.8 82.8%
2017 -$11.9 -106.1%
2018 -$27.4 -130.5%
2019 $41.8 252.6%

(Source: MarketWatch, op. cit.)

So, while AMSC sorts out its business, the balance sheet is absent of debt and the company holds cash of almost $74.0 million, or $3.43 per share. (Source: Yahoo! Finance, op. cit.)

Analyst Take

The potential for American Superconductor stock is all about the execution going forward.

If American Superconductor Corporation can continue to ramp up its revenues and move toward adjusted profits, this could trigger buying in AMSC stock and a much higher share price.

A move back to its high of $439.50 is highly unlikely, but I would be pleased with a double or a triple.