Stock Market

It’s tough to argue that American Superconductor’s (NASDAQ:AMSC) recent supercharged rally was anything but the product of a meme-like wave of speculative frenzy. AMSC stock didn’t rally on game-changing news.

Rather, as InvestorPlace’s David Moadel pointed out recently, chances are that it was statements from Tesla (NASDAQ:TSLA) CEO Elon Musk regarding the U.S.’s future electric needs that kicked off this stock’s move to as much as $17.37 per share in late July/early August.

Yet while this electric vehicle  infrastructure play zoomed higher for the least substantive of reasons, there’s more than just hype here with American Superconductor. Although currently unprofitable, that may not be the case for long. This makes this a top “green wave” play worth considering.

There is, however, a caveat. While shares have fallen back near pre-moonshot levels, it’s likely too early to “buy the dip.”

AMSC Stock: A Meme Play With Substance

American Superconductor’s run a month ago is proof positive that “meme stock mania” hasn’t completely disappeared. Yet while this trend hasn’t vanished, it certainly has changed.

As a Reuters piece on meme stocks published earlier this month discussed, meme traders are more cautious today than they were in early 2021.

This may help explain certain aspects of the AMSC stock rally. Like other recent meme wave rallies, this rally was fairly short-lived.

The rally was much less intense than the epic meme waves experienced in 2021 by not just high-profile names like GameStop (NYSE:GME), but smaller, more volatile meme stocks as well.

In addition, this situation differs from past “to the moon” situations, where traders irrationally bid up shares in bankrupt and fundamentally weak companies. With American Superconductor, traders appear to have jumped into a stock that, while very speculative, has a growth story with substance.

Founded in 1987 with established operations around the world, this producer of wind turbine electronic controls and advanced grid systems is definitely not an early-stage startup.

However, with the shift toward renewable energy accelerating, a real “payoff moment” for this company could finally arrive within the next few years.

The Next Big Catalyst

Over the past few years, the pivot to renewables has led to big revenue growth for American Superconductor. In the fiscal year ending March 2019, the company reported total revenue of $56.2 million.

Analyst forecasts call for revenue this fiscal year (ending March 2024) to come in at around $128.1 million.

This surge in growth began in 2020. That’s when energy policy began to really shift toward the proliferation of zero-carbon energy sources.

AMSC stock joined in on the “green stock rally” that also began at this time. AMSC zoomed from around $5.50 per share in early 2020, to prices topping $30 per share in early 2021.

However, soon after that, American Superconductor gave back these gains, and then some. The market realized a big takeaway with “green wave plays like AMSC. While poised to capitalize on energy policy changes, profitability stemming from these changes remained many years away.

But this sentiment shift has been a source of frustration for existing investors, there is a silver lining, particularly for those who have yet to enter a position. A move to profitability will likely drive a significant re-rating for shares.

Bottom Line

As discussed in the latest earnings report, management expects AMSC to essentially become break-even on a cash flow basis next quarter. It may not be long before revenue scales up to the point where the company is consistently profitable.

For instance, as InvestorPlace’s Larry Ramer pointed out in July, there’s big potential with two end-user markets. First, the military market. American Superconductor recently received $34 million in orders from the U.S. Navy to provide energy power systems.

Second (in line with Musk’s statements), there may be demand down the road from utilities for AMSC’s line of resilient electric grid (or REG) systems.

Yet while these factors point to an inflection point ahead, don’t run out and grab a position in shares today.

Likely to give back more of its recent meme gains, if bullish on AMSC stock, wait for the next round of major weakness.

On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

Articles You May Like

7 Dividend Stocks That Follow Warren Buffett’s Cardinal Rule
3 Stocks You Don’t Want to Be Caught Holding When the Market Drops
3 Companies Seriously Due for a Stock Split in 2024
7 Stocks to Buy Now: June 2024
Nvidia Stock Price Outlook: Will NVDA Suffer a Dot-Com Bubble Type Disaster?