Much as investors and so-called "socially responsible" funds seem to like the sector, energy technology really has yet to deliver an established winning company to match a success story like Amgen (Nasdaq:AMGN) in biotech. As has so often been the case, American Superconductor (Nasdaq:AMSC) gave investors a glimpse of a successful future only to see market conditions erode significantly. Where American Superconductor was once an interesting risky growth play on wind power, now the company is simply trying to stay in the game long enough to rebuild its business and participate in the eventual wind power recovery.
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For Q4, the Number That Really Mattered Looked Good
American Superconductor reported that sales fell more than 50% in its fiscal fourth quarter, as major customer Sinovel Wind Group has long since disappeared from the scene. While the company's sales number was more or less as expected, and the gross margin was actually a little better than analysts expected, operating expenses were a little higher.

None of that makes an enormous difference right now, though. The fact is that AMSC is going to be hard-pressed to show a profit (GAAP or adjusted) before 2014 and the name of the game now is about simply staying in the game. Thus, the fact that the company exceeded its quarter/fiscal year-end cash target ($66 million versus $50 million), is arguably the more important result. What's more, since quarter-end, the company has raised another $35 million in senior convertible notes and term loans.

A Higher Cost of Buying Time
That's not to say that American Superconductor is getting a free pass as it tries to rebuild its business model in the wake of losing Sinovel's business. The convertible debt is carrying a 7% rate, while the term debt is costing the company 11%. That's not terrible for a company with American Superconductor's financials, but it does represent what is likely to eventually be dillutive financing.

SEE: The Dangers of Share Dilution

Can the Company Find a Suitable Sinovel Substitute?
While AMSC is pursuing legal action against Sinovel through China's legal system, investors shouldn't get their hopes up that this will result in any meaningful satisfaction. Let's just say that the record of American companies suing Chinese companies in China has not been encouraging, particularly when it concerns American companies that are too small to have major political forces in their corner.

This leaves American Superconductor going back to the drawing board and trying to generate orders at a time when overall market activity in wind power is pretty terrible. AMSC does have an interesting product with its SeaTitan turbine, but larger rivals like General Electric (NYSE:GE), Siemens (NYSE:SI), and Vestas (OTCBB:VWDRY) have been rolling out newer turbines as well and boast more productive customer relationships.

To that end, while the news of follow-on orders to India's Inox is encouraging, it's not convincing. American Superconductor does have a large-looking backlog (over $290 million), but little of that is secured by deposits or pre-payments and the ongoing malaise in wind power installations (and tight fiscal budgets around the world) raises the risk of further cancellations or delays.

SEE: Clean Or Green Technology Investing

The Bottom Line
While I wouldn't close the book on American Superconductor just yet, some realism is in order. This is a company that has been long on promises and potential for a long time, but has had a decidedly worse record of living up to them. Once-promising projects like superconducting cables and marine motors have pretty much gone away, and the problems with Sinovel suggest that the wind power business is scarcely more reliable.

Likewise, those pushing the angle that "GE or Vestas will buy them to get their technology" need to realize that American Superconductor's technology is not exactly irreplaceable or essential. Wind power has been with us for a while now, and it stands to reason that if AMSC's technology was "must have," somebody would have made a move by now.

In the pre-Sinovel days, AMSC often traded at around 2 times tangible book value, and I see no particular reason to think that's not a reasonable metric again today. That suggests a price target in the area of $6. If American Superconductor can stay liquid through this wind power recession, the future could yet be worthwhile, but this is a story with a lot of risk and a payoff that's well into the future.

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At the time of writing, Stephen Simpson did not own shares in any of the companies mentioned in this article.