Thursday, September 24, 2009

Anyone's guess what A123 is worth (AONE)

AlphaNinja - Yesterday I mentioned some of this week's IPO's. While the mortgage IPO's are floundering today, lithium-ion battery maker A123 (AONE) is up 43% from it's offering price this morning of $13.50. Keep in mind that the offer price was initially going to be between $8-9.50, then $10-11.50, and finally boosted to $13.50 - and the amount of shares offered was boosted over 10%. Huge demand among investors for a piece of this action.

From the S-1, the company is nowhere near profitable - note that cost of goods sold exceeds GOODS SOLD!

The shares are currently trading at $19.85 -->> that means the valuation has increased nearly 130% since the earlier estimates of the offer price.

How much should this thing trade for, considering there's no profits? According to the filing, there's about 96million shares outstanding, pegging the company's value at $1.92billion, or 27times this year's $70million in expected sales (It's closer to $1.5billion if we exclude yet-to-be exercised options). Total insanity, unless you buy into management's estimates of future sales:

According to A.T. Kearney, the global lithium-ion battery market for automotive application in HEVs, PHEVs, and EVs is estimated to be $31.9 million in 2009. A.T. Kearney projects that this market will grow to approximately $21.8 billion by 2015 and $74.1 billion by 2020

If A123 takes 20% market share of the estimated $22billion in 2015 revenue, that could mean $4.4billion in sales for the firm. A price-to-sales of 2 (not warranted, but they'll get it due to investor mania over "green" anything) would lead to a market value of $9billion, or 373% higher than where we're at now.

And how does the company get there? By government-mandate of course!

"based on a moderate drive for change influenced by increasing governmental regulation, emerging powertrain technology, changing consumer demand and OEM product strategies toward more fuel efficient vehicles."

The projection from A.T. Kearney for an increase in the lithium-ion market of 68THOUSAND percent by 2015 is pretty ridiculous. Buyer beware.

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