U.S. Geothermal (HTM) Becomes More Appealing to Institutional Investors
November 28, 2016 5:32 am ET
U.S. Geothermal Inc. (NYSE MKT: HTM), a leading renewable energy company focused on geothermal energy, recently completed a 1-for-6 share consolidation that brought its share price above $4.00 and reported consolidated, adjusted net income of $1.8 million during the past nine months. These improvements could make the stock more attractive to institutional investors and certain brokerage firms, which could add liquidity and help the company reach a more appropriate valuation.
In this article, we will look at the company’s financial performance and how institutional investment could help unlock value for shareholders.
Solid Financial Performance
U.S. Geothermal may trade with a micro-cap market capitalization of less than $100 million, but value-oriented investors shouldn’t let the small micro-cap status fool them. Unlike many micro-cap stocks, the company has been profitable and growing for the past several years. Revenue has been growing at a 23.5% clip over the past five years, according to Morningstar, while free cash flow generation hit $7.2 million year to date.
During the first quarter, the company experienced some extraordinary mechanical challenges that negatively impacted its gross profit by $2.3 million. Management believes that its power plants are performing “admirably” moving into the fourth quarter, however, which means that the hiccup was merely a one-off problem. Investors should take its third quarter results with a grain of salt when computing a fair valuation for the stock.
Moving forward, the company received a small generator interconnection agreement from Nevada Energy for a 10MW expansion at San Emidio II and completed the drilling of a second production leg at Raft River that’s back in production. The company also completed drilling and testing at El Ceibillo in Guatemala and completed the deepening and testing of two existing temperature gradient wells at San Emidio II.
Attractive to Institutions
U.S. Geothermal’s business is highly attractive to institutional investors for a number of different reasons, while its share consolidation may open the door to investment. Investors may want to take a closer look at the stock given these dynamics, since institutional investors could help increase liquidity and unlock a fair valuation by reducing market inefficiencies.
The company’s renewable energy business represents an attractive “ESG” play for investors. ESG investments – energy, social, governance – have become increasingly popular among investors looking for more than just financial returns on their investments. Unlike other renewable energies, the company’s capital costs are incurred upfront and there are little ongoing costs, which yields high-margin recurring revenue for shareholders.
In the past, the company’s sub-$1.00 share price meant that the stock was off-limits to institutional investors. Mutual funds and other institutions are often forbidden from investing in companies that trade for less than $1.00 per share since they are “penny stocks”. The company’s $4.00 share price following the share consolidation could open the door for these institutional investors to take positions in the stock.
U.S. Geothermal Inc. (NYSE MKT: HTM) recently completed a share consolidation and reported strong financial performance during the past nine months. Institutional investors may find the stock a lot more attractive following these developments and their involvement in the stock could lead to increased liquidity and a higher share price. Retail investors may want to take a closer look at the stock over the coming weeks.
For more information, visit the company’s website at www.usgeothermal.com.