Hydrogenics (Nasdaq:HYGS) Rallied On Friday - We Think Stock is Still Cheap

Sep 29, 2008
Author: SCP Editor

September 29, 2008 – Hydrogenics (Nasdaq:HYGS) broke out on volume in the midst of broader market weakness on Friday. The stock closed up 36% on 1.3 million shares traded, while volume for the previous seven sessions had been below 411,000 per day. The company didn’t announce any news which could immediately account for the stock’s movement, but we think that the stock’s selloff was way overdone, and that clearly some investors in the markets agree with our assessment that there is some real upside for the business.

As we noted on September 16, as the stock drifted to $0.68,

We are forecasting $40 million in revenues for FY2008, and think that, given the company’s tremendous growth opportunity and proven ability to address it, that a 2.5x P/S multiple is defensible, which produces an implied stock price target of $1.08.

At Friday’s closing price of $0.90, the stock is still 20% off our target, but we wouldn’t be surprised to see more volatility in Hydrogenics’ stock in the midst of the broader market turmoil. On the other hand, the stock has recently (July) traded comfortably in the $1.50 to $2.00 range, hitting an intraday high of $2.45 on July 2. So the stock has shown the ability to rally, even in a lackluster market.

When the stock rallied to $2.45, we suggested that the stock had likely gotten ahead of itself and recommended that our readers cut their positions, take some profits and buy the stock back in the $1.20 range, if it pulled back that far. So, in light of the fact that we like the stock at $1.20, we are definitely bullish on the stock, and the company, at $0.90.

We think the promise and advantages of hydrogen fuel cell storage are real. Hydrogen has the highest energy content per unit of weight than any other known fuel. The applications extend to transport, where hydrogen produces effectively zero emissions, to onsite hydrogen generation systems and fuel cell power systems for industrial purposes.

The biggest area of opportunity that we see for Hydrogenics is in its HySTAT™ line of stations that provide hydrogen generation solutions for renewable power including wind, solar, electrical grid and hydro. Key developments to continue to watch are the company’s previously announced supply of an electrolyzer for a remote community wind-hydrogen energy system (we expect to see more of these types of announcements) and its supply of a clean energy hydrogen system to Shell-Hydrogen for its California Hydrogen Highway initiative.

Important Disclosure Note: SCPEditor and/or its affiliates is LONG HYGS. The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance.