Advanced Battery Technologies, Inc. (ABAT)

notzia (< 20) Submitted: 11/12/08 3:02 PM : Start Price: $5.28 ABAT Score: -12.14

Why ABAT should be a Buy:

1.   The Total Assets ($77.6 M) are 19 times its Total Liabilities ($4.0 M). This is a virtually debt free company.
2.   Shareholder equity more than doubled over the most recent three quarters - from $36.5 M in the 4th quarter of 2007 to $73.6 M in the 3rd quarter of 2008. In just the last quarter, the diluted shareholder equity increased from $0.97 to $1.40 per share (44%) despite the fact that number of shares were increased through a private placement (the funds generated by this PP were needed to build additional and upgrade existing production facilities – more on these below).
3.   3rd Q revenue grew 47.7% YoY on a stock with a trailing P/E of 8 and a forward P/E of only 5.
4.   3rd Q gross profit grew 47.8% YoY.
5.   The 3rd Q cash position is 27% higher than total revenues in 2007 ($40.6 M compared to $31.8 M). This is huge in an economy with tight credit markets.
6.   Between upgrades to the existing buildings A and B, and the expansion into new buildings C and D, the company expects production to increase 165%. When everything is finished, production lines will be operating at 100% capacity. Although when these upgrades and expansions were announced (at 2Q earnings), there was a backlog of $58M representing firm orders to be delivered over the next 18 months, since then the backlog has increased to $62M while the delivery time has shortened to 15 months. In addition, the company has announced a new 5-year contract with Veken USA beginning in Dec. 2008 and is expected to generate $27M in annual revenue.
7.   2008 revenues are projected to be $46 M, which is 42% higher than 2007 ($31.8 M).

The stock price has been hammered unmercifully during this financial downturn. It suffered most with the private placement. Although the dilution was a little more than 5%, the price of the stock was nearly halved. The effect of the PP completely negated strong 2nd Q earnings. The downturn has pushed the price down even further. To borrow words from Cramer, “this is a broken stock, not a broken company.” When confidence returns to the market, this is a stock that will soar.

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