Thursday, June 3, 2010

Ballard Power Systems Inc

In the late 1990’s I read about investing in small cap stock. The article said that you should invest in a basket that contained at least 5 stocks. The theory was that you could only lose what you have invested, but the sky’s the limit to what you can gain. What you needed was only about 20% or 2 in 5 stocks being successful to make money on small caps. So, I bought a number of small caps, but I never made money on any of them.

The main problem was the bear market that occurred in the 2000. None of my stock recovered from that. Take this company, Ballard (TSX-BLD, NASDAQ-BLDP), which I invested in, in 1997 and sold in 2006. I lost 5.3% per year or 38% of my investment. While, at least this stock is still around and on the stock market. I am still following this stock. I still think that fuel cells are a good idea, but I am also curious to see if they will ever make any money.

This company has a Wikipedia entry. A site commentary on small cap stocks talks about this company at Straight Stocks. There is also an article on the fuel cell industry today.

This company is not making any money and there has been very few years in the past when it has. Analysts’ looking at this stock talk about their sales, which was $46M in 2009. However, in terms of sales growth, it is not bad over the last 10 years with growth of 7.5% per year in US$ (but only 4% per year in CDN$). There has been no growth over the last 5 years, and sales have been declining around 11% per year (and worse in CDN$). The one way of valuing non-profit making companies is to look at the Price/Sales Ratio. What you want is a Ratio about 1.00. However, the 2009 P/S ratio is around 3.40 and the 5 year average is even worse at 7.30.

Surprisingly, there are a number of analysts who follow this stock. When I look at analysts’ recommendations, I find Strong Buy, Buy, Hold, Underperform and Sell recommendations. (See my site for information on analyst ratings.) The consensus recommendation would be a Hold. No one seems to expect this stock to have any positive earnings or cash flow for 2010 or 2011, but many expect the stock price to go up from where it is currently. There is some minor Insider Selling and no Insider Buying. All the Insider Selling seems to be in connection with stock options.

It was interesting investing in small cap stocks. Most of the ones I invested in were not making any money. I am presently looking at small cap stocks that pay dividends. These stocks, in order pay dividends, by definition, have to be making money. And, who knows, maybe if the recession and bear market of 2000 had not come along and been so strong, I might have made some money on these small caps. It certainly was a learning experience and one I do not regret.

Ballard Power Systems designs and manufactures clean energy hydrogen fuel cells. Better energy, delivered through our focused fuel cell innovations, offers the Power to Change end-user applications, while also improving the environment. Its web site is here Ballard. See my spreadsheet at bld.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

No comments:

Post a Comment