Ormat tops $2B
Today, despite the earlier dilution from a secondary offering on the public market, Ormat’s market capitalization has surged past $2B. That puts the P/E ratio at nearly 95 trailing twelve months. Ormat is a good company in a hot market. But, does the company’s performance justify this sort of premium? Caveat Emptor.
Consider Sunpower. It has a market cap 5 times as big as Ormat and a PE of ~600. The stock price is up ~40% in the last 2 weeks and is up over 6% today. I think the fact that both are companies producing renewables is part of what is driving the stock price. With $94 oil!!! and carbon limits coming, the renewables producers are worth more than before.
I think there is also an expectation in Sunpower’s case that they will be able to reduce the cost of PV and increase their sales and profits. I’m not so sure.
I think there is a chance that Ormat will be able to increase the sales and margins of their equipment business if the geothermal market takes off. Since they mostly sell electricity on long term fixed price contracts they only have pricing power for new plants and it seems to me that their overall margins for electricity sales will go up much slower. Of course they could expand their development activities significantly as well.
Fair comments Bruce, but consider that 80% of Ormat’s business is fixed price PPA driven and 20% is equipment driven. Ormat’s peers living off PPA driven business have an average P/E of 15.
I’m simply suggesting that this is a bubble and folks can ride it up, but be careful not to ride it down. See ethanol as an example.