There’s a big tomorrow in power generation. No, not in public utilities, which always are draggy stocks. At issue is the equipment that will help the world meet a growing need for more electricity, and doing that via renewable energy.
And a good means for investors to take advantage of that trend is with a company that does a lot of power-related things well, enjoys good revenue growth, still isn’t profitable, but has seen its stock quadruple over the past five years. That sounds a lot like Amazon AMZN in the 1990s.
In this case, we’re talking about AMSC (it stands for American Superconductor Corporation AMSC ), which focuses on the electrical grid, the lifeblood of modern civilization, and does so with modern technology. The outfit also is a big player in wind power, cementing its place in renewable energy. Recently, it expanded yet again via its purchase of Northeast Power Systems, which makes gear vital to the grid’s operations. Acquiring companies often see their share price dip. Not AMSC. This year alone, its stock is up a bracing 228%.
Make no mistake: The electricity biz has a big future. According to U.S. Energy Information Administration, global power generation will almost double, to 45 trillion kilowatt hours by 2050. “The grid is going to get bigger” with renewable energy, needed to combat climate change, rising too, says Dan McGahn, AMSC’s chief executive. One propellant of the demand for more electricity output, he notes, is a coming surge in electrical vehicles.
Small wonder the company’s revenue growth has been substantial. In its fiscal second quarter, ending Sept. 30, revenue swelled to $21.1 million, compared with $14 million for the year-earlier period. Part of its success is in the burgeoning field of wind power. The existing grid is 56% of its business, with wind at 44%. The company’s slogan is: “We don’t generate the energy. We keep it moving.” AMSC likens itself to an orchestra conductor. Instead of melding woodwinds, brass, strings, drums and the like, AMSC harmonizes transmission lines, substations and generators.
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The last time we wrote about AMSC, in March 2019, the company had just moved into a related seemingly unrelated realm: protecting Navy vessels from mines. The old method of ship protection involved winding heavy copper wire around hulls to shield them from detection from magnetic oriented mines. Trouble is, naval ships nowadays operate in shallower water than in the past—which increases their vulnerability. AMSC’s wire does better at lowering a ship’s magnetic signature and weighs one fifth what the old copper wire did.
Perhaps it’s a backhanded compliment to AMSC that it was the victim of tech piracy from China. A decade ago, it furnished components for wind turbines to Beijing-based Sinovel. Then Sinovel announced it was dumping AMSC—turned out the Chinese firm had simply copied the U.S. supplier’s technology. AMSC went on to win an $800 million court judgment against Sinovel.
A key part of AMSC’s business is its effort to do what CEO McGahn calls “hardening the grid.” The way things work now, should one of a power provider’s substations fail, the entire area gets blacked out. AMSC’s innovation is to integrate the grid like the Internet. That way, it’s easier to reroute power to keep the lights on in the afflicted neighborhoods.
In buying Northeast Power Systems, AMSC paid $26 million in cash, plus 873,657 restricted shares of common stock. This acquisition establishes AMSC more firmly in the industrial sector, which needs protection against problems like huge voltage swells that can mess up their production. The added product lineup gives AMSC a bevy of surge protection equipment, as well as such stuff as medium voltage metal-enclosed capacitor banks, harmonic filters and fast switching reactive power solutions.
The day the company is in the black is likely drawing near. AMSC recently completed a new offering of stock, raising $55 million. Investing in its shares makes a lot of sense: Technology is an ever-changing mix, but what the world always will require is what is makes those tech innovations run. Electricity.