Two weeks ago, we first wrote about American Electric Technologies, Inc. (AETI) after it announced a $40 million contract with its joint venture partner. This news caused the stock to rise from $0.40 to as high as $1.72 on 66 million volume traded over the following two days. Since then, AETI has pulled back significantly to $0.89 and daily volume has died down to well less than a million shares traded. We think that this is an ideal time to load up on it as the fundamentals support a higher price and a nice base has formed after its significant pullback. We are up to 739 followers despite not giving out a lot of alerts, a fact that we think is indicative of a successful, diligent and prudent stock picking history. If you like our picks you can follow our blog by clicking the follow button on the top of the left hand panel. You can also follow us on Twitter @StockTradePicks. We have over 3,300 followers on Twitter as well.
At $0.89, AETI's market cap is only $8 million. A higher market cap is certainly justified based on this news:
"HOUSTON, Dec. 03, 2018 (GLOBE NEWSWIRE) -- American Electric Technologies, Inc. (AETI) (the “Company”) today announced that its Chinese joint venture, BOMAY Electric Industries Company, Ltd. (“BOMAY”), received orders for 40 control systems to be used for new Chinese domestic drilling rigs. Ten units will be shipped prior to next year’s Chinese New Year in February and the remainder will be shipped by July 2019. The estimated value of the order is approximately US$1 million for each system. AETI has the second largest ownership in the JV at 40%, with 51% held by Bomco, a wholly owned subsidiary of the China National Petroleum Corporation.
Mr. Cheng Bo, General Manager, said he and his team are very proud to be recognized as a leader in the electric control systems business for oil drilling land rigs, and to be chosen to produce these systems to help develop domestic Chinese oil and gas fields. Mr. Cheng Bo also added that as part of the domestic development of Chinese oil and gas resources, BOMAY has designed and built one 2,500 HP and one 3,000 HP medium voltage drives for fracking pumps. These units valued at US$500K each, are currently in test. Also, BOMAY recently designed and built a 2000 HP direct drive draw works for retrofits of old and new drilling rigs. Value for each system is approximately US$700K, which is also currently in test. Future significant orders are expected for both products.
AETI also announced a large FPSO (Floating, Production, Storage, and Offloading) vessel decommissioning project with its subsidiary M&I Electric Brazil. The project is expected to last up to 24 months and reinforces the company’s market strategy to move into the offshore oil production segment. “We are glad to help our customers in this decommissioning project in a safe and environmentally responsible way,” said Jose Octavio-General Manager of M&I Electric Brazil. Revenues are expected to be US$1.5-2.0 million by the end of the project."
The JV with BOMAY calls for $40 million in revenue by July 2019. AETI is entitled to 40% of that or $16 million in revenue. Despite the recent move up in its stock price, AETI is still trading at half of the value of its portion of this one contract. AETI also announced a $1.5 to $2 million contract over two years in Brazil.
Finviz, a leading financial website, has a $3.30 target price on AETI:
In addition to the $3.30 target, Finviz highlights several other fundamental and technical metrics that are favorable for AETI. Its float is only 5.4 million shares out of a total 9.37 million outstanding. The short float is allegedly only 3.3% but that figure is based on a November short interest. There is very likely a much higher short interest now given the spike in volume and price. The combination of a low float and high short interest greatly increases the chance of a short squeeze, especially for a nanocap stock with higher quality financials.
On the fundamental side, a P/S ratio of 0.44, P/B of 0.97, P/C of 1.46 and cash per share of $0.61 all look very favorable, and this was prior to the deal being announced. Usually a company that is trading at such cheap metrics has a balance sheet that looks like a horror show. But looking at the company's Q3 balance sheet, we see this is not the case with AETI:
AETI sold off its U.S. business which has allowed it to expunge all of its debt AND garner over $5 million in cash in 2018. However, that balance may be subject to a working capital adjustment from the sale. AETI has $18 million in assets against only $5 million in liabilities, demonstrating the discount to its book value. The sales lost through the sale of its U.S. operations will be more than made up with the BOMAY contract.
AETI has some preferred shares which have a conversion price of $5.00, repriced to $2.26 last year:
Those preferred stockholders sure have an incentive to see AETI climb above $2.26.
The last piece of the puzzle is the income statement:
AETI pulled profits in Q3, but that is largely due to the gain on the asset sale. Income from continuing operations is the key line item to pay attention to. AETI lost $0.7 million in Q3 and $1.8 million for the nine months in 2018. With this new contract, we can reasonably expect those losses to turn into positive numbers shortly. Another important consideration since the stock has run a lot is that if the company is only losing $700,000 or so a quarter and has over $5 million in cash (subject to the working capital adjustment), the likelihood of financing is much less than the average microcap company. It is not a 0% chance of financing, but much less. We would assume that with the preferred stock conversion rate at $2.26, the company and the preferred shareholders would rather hold off on a financing to try to get a higher price, or maybe never need a financing if the company is cash flow positive before the $5 million runs out.
Considering the large size of the contract, the improved balance sheet, the strong cash balance, the low burn rate, the $3.30 target price from Finviz and the $2.26 conversion price, AETI looks like a solid bet for us to continue to load up after the significant pullback and consolidation at $0.89 since the first major run to $1.72.
Disclosure: We are long AETI
2018 was a wild roller-coaster for the stock market, but a bad time in general for microcap stocks. Still, we made good money on some microcap stocks if you look at our picks over the course of 2018, both longs and shorts. As we head out of a volatile 2018 and into 2019, we have to figure out what's next. TradeMiner identifies seasonal trends and market cycles while the Penny Stock Prophet and Microcap Millionaires find the next big small cap plays in a multitude of industries.
Here are some other good stock market resources. This includes technical analysis and day trading, dividend stock investing, gold and commodities, sector rotation, options trading and microcap trading strategies:
The dividend stock report from dividendstocksonline.com
At $0.89, AETI's market cap is only $8 million. A higher market cap is certainly justified based on this news:
"HOUSTON, Dec. 03, 2018 (GLOBE NEWSWIRE) -- American Electric Technologies, Inc. (AETI) (the “Company”) today announced that its Chinese joint venture, BOMAY Electric Industries Company, Ltd. (“BOMAY”), received orders for 40 control systems to be used for new Chinese domestic drilling rigs. Ten units will be shipped prior to next year’s Chinese New Year in February and the remainder will be shipped by July 2019. The estimated value of the order is approximately US$1 million for each system. AETI has the second largest ownership in the JV at 40%, with 51% held by Bomco, a wholly owned subsidiary of the China National Petroleum Corporation.
Mr. Cheng Bo, General Manager, said he and his team are very proud to be recognized as a leader in the electric control systems business for oil drilling land rigs, and to be chosen to produce these systems to help develop domestic Chinese oil and gas fields. Mr. Cheng Bo also added that as part of the domestic development of Chinese oil and gas resources, BOMAY has designed and built one 2,500 HP and one 3,000 HP medium voltage drives for fracking pumps. These units valued at US$500K each, are currently in test. Also, BOMAY recently designed and built a 2000 HP direct drive draw works for retrofits of old and new drilling rigs. Value for each system is approximately US$700K, which is also currently in test. Future significant orders are expected for both products.
AETI also announced a large FPSO (Floating, Production, Storage, and Offloading) vessel decommissioning project with its subsidiary M&I Electric Brazil. The project is expected to last up to 24 months and reinforces the company’s market strategy to move into the offshore oil production segment. “We are glad to help our customers in this decommissioning project in a safe and environmentally responsible way,” said Jose Octavio-General Manager of M&I Electric Brazil. Revenues are expected to be US$1.5-2.0 million by the end of the project."
The JV with BOMAY calls for $40 million in revenue by July 2019. AETI is entitled to 40% of that or $16 million in revenue. Despite the recent move up in its stock price, AETI is still trading at half of the value of its portion of this one contract. AETI also announced a $1.5 to $2 million contract over two years in Brazil.
Finviz, a leading financial website, has a $3.30 target price on AETI:
In addition to the $3.30 target, Finviz highlights several other fundamental and technical metrics that are favorable for AETI. Its float is only 5.4 million shares out of a total 9.37 million outstanding. The short float is allegedly only 3.3% but that figure is based on a November short interest. There is very likely a much higher short interest now given the spike in volume and price. The combination of a low float and high short interest greatly increases the chance of a short squeeze, especially for a nanocap stock with higher quality financials.
On the fundamental side, a P/S ratio of 0.44, P/B of 0.97, P/C of 1.46 and cash per share of $0.61 all look very favorable, and this was prior to the deal being announced. Usually a company that is trading at such cheap metrics has a balance sheet that looks like a horror show. But looking at the company's Q3 balance sheet, we see this is not the case with AETI:
AETI sold off its U.S. business which has allowed it to expunge all of its debt AND garner over $5 million in cash in 2018. However, that balance may be subject to a working capital adjustment from the sale. AETI has $18 million in assets against only $5 million in liabilities, demonstrating the discount to its book value. The sales lost through the sale of its U.S. operations will be more than made up with the BOMAY contract.
AETI has some preferred shares which have a conversion price of $5.00, repriced to $2.26 last year:
Those preferred stockholders sure have an incentive to see AETI climb above $2.26.
The last piece of the puzzle is the income statement:
AETI pulled profits in Q3, but that is largely due to the gain on the asset sale. Income from continuing operations is the key line item to pay attention to. AETI lost $0.7 million in Q3 and $1.8 million for the nine months in 2018. With this new contract, we can reasonably expect those losses to turn into positive numbers shortly. Another important consideration since the stock has run a lot is that if the company is only losing $700,000 or so a quarter and has over $5 million in cash (subject to the working capital adjustment), the likelihood of financing is much less than the average microcap company. It is not a 0% chance of financing, but much less. We would assume that with the preferred stock conversion rate at $2.26, the company and the preferred shareholders would rather hold off on a financing to try to get a higher price, or maybe never need a financing if the company is cash flow positive before the $5 million runs out.
Considering the large size of the contract, the improved balance sheet, the strong cash balance, the low burn rate, the $3.30 target price from Finviz and the $2.26 conversion price, AETI looks like a solid bet for us to continue to load up after the significant pullback and consolidation at $0.89 since the first major run to $1.72.
Disclosure: We are long AETI
2018 was a wild roller-coaster for the stock market, but a bad time in general for microcap stocks. Still, we made good money on some microcap stocks if you look at our picks over the course of 2018, both longs and shorts. As we head out of a volatile 2018 and into 2019, we have to figure out what's next. TradeMiner identifies seasonal trends and market cycles while the Penny Stock Prophet and Microcap Millionaires find the next big small cap plays in a multitude of industries.
Here are some other good stock market resources. This includes technical analysis and day trading, dividend stock investing, gold and commodities, sector rotation, options trading and microcap trading strategies:
The dividend stock report from dividendstocksonline.com
The dividend stock report from Dividend Stocks Rock
Goldmasterinvesting.com Ocean Of Gold Report for the top 15 gold mining companies
Trader Review
The Trader's Academy Club
The Wealth Builder's Club from beatthemarketanalyzer.com
MyBB: A Forum For Investors and Traders
Spartan Trader Forex Academy Live Daily Trading Room
And try the Z Code System if you're looking for other ways to make money systematically outside of the stock market.
Goldmasterinvesting.com Ocean Of Gold Report for the top 15 gold mining companies
Trader Review
The Trader's Academy Club
The Wealth Builder's Club from beatthemarketanalyzer.com
MyBB: A Forum For Investors and Traders
Spartan Trader Forex Academy Live Daily Trading Room
And try the Z Code System if you're looking for other ways to make money systematically outside of the stock market.
Bitcoin has gone from a concept worth pennies a few years ago to worth thousands of dollars. It may appear to some who are late to the game that the opportunity to get rich is gone. However, there are still plenty of ways to make some money trading in bitcoin and other cryptocurrency. Here are some links to valuable reports and strategies:
The Cryptocurrency Codex from the Cryptocurrency Institute
Secrets To Unlimited Free Bitcoin
The Crypto-Currency Evolution eBook
Bitcoin Complete Guide for Dummies
The Bitcoin Miracle Guide
The Bitcoin Cheat Code Book
The Crpytocurrency Course
Bitcoin Investing Live
The Cryptocurrency Codex from the Cryptocurrency Institute
Secrets To Unlimited Free Bitcoin
The Crypto-Currency Evolution eBook
Bitcoin Complete Guide for Dummies
The Bitcoin Miracle Guide
The Bitcoin Cheat Code Book
The Crpytocurrency Course
Bitcoin Investing Live
No comments:
Post a Comment