Energy tech is a perennially exciting market, even as the attention shifts from year to year among fuel cells, solar panels, wind power, batteries and so on. What makes Maxwell Technologies (Nasdaq:MXWL) unusual, though, is that it's a company with real revenue, real products and actually just a bit of profitability. While there is still very much a "build it and they will come" aspect to the company's targeted markets, Maxwell looks like a better play on the future of power alternatives.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Rare Profitability
A lot of energy tech has been divvied up between unprofitable speculative companies with little more than patents and prototypes and giant industrial/technology concerns. That makes Maxwell's profitability rather uncommon.

For the company's fourth quarter, for instance, revenue rose 24% (with 30% growth in its key ultracapacitor business). Gross margin improved by more than a point from the prior year, and operating margin was not only positive, but a point higher than in the year-ago period.

Reasonable Starting Points
Right now, Maxwell has two principal addressed markets for its ultracapacitor business - hybrid diesel buses and wind turbines.

Hybrid buses are a solid starting point or proving ground for the company's automotive hopes. Although they're called "hybrids," these buses are similar in many respects to diesel-electric locomotives. and it's not exactly a missionary sale to get transit authorities to try them.

Wind turbines are more of a mixed blessing at present, as budget problems across the world have led to governments curtailing their subsidies for more installations. That said, Maxwell, like Zoltek (Nasdaq:ZOLT), in a good place insofar as being a "platform neutral" supplier of components instead of a soup-to-nuts proprietary builder.

Will More Promising Markets Develop?
The big question for Maxwell investors is when (or whether) larger, more promising markets will develop into real commercial opportunities. Car companies like Toyota (NYSE:TM) and Honda (NYSE:HMC) have had success with their hybrid vehicles, but Maxwell has yet to land a major headline-grabbing vehicle content deal. Yes, the company has agreements with Continental AG and its ultracapacitors are used by PSA Peugeot Citroen, but ultracapacitor content in hybrids is still well below what it could be. (For related reading, see Auto Stocks Driving Higher.)

Likewise, the vehicle start-stop market has yet to take off as a lot of bulls once projected it would. Peugeot is using Maxwell products for this application, and companies like Porsche and Mercedes are pushing the technology, but it's still many years away from being conventional.

In the meantime, there are other markets that Maxwell can address. The company has already targeted the uninterruptible power supply market (a popular market for energy tech ideas) and additional applications like truck engine starters and brake recuperation systems in trains could pay off.

Does Maxwell Need More Competition?
Odd as it may sound, the fact that Maxwell has a near-monopoly in ultracapacitors may be working against it. Potential customers like leading car companies are going to be cautious in investing millions of dollars designing around a product that can only be supplied by one company (and a small one at that), and there is likewise only so much that Maxwell can spend in promoting its technology.

Panasonic (NYSE:PC) does have some interest and technology in ultracapacitors, but a great deal more attention is given to companies working on advanced battery technologies. Unfortunately, companies like A123 (Nasdaq:AONE) and Axion (OTCBB:AXPW) have had a great deal of difficulty in getting traction for their own products. That leaves a lot of the likely long-term winners locked within larger companies like Johnson Controls (NYSE:JCI).

The Bottom Line
Assigning a fair value to Maxwell is a thankless task. So much of the real value of the company lies in the development of markets that are presently tiny (hybrid vehicles, start/stop, and so on) and may never become significant. Likewise, while Maxwell is profitable today, there's no guarantee that they can develop a model that will deliver economic returns over the long-haul.

As a cash flow model here would be nothing more than a dressed-up guess, perhaps it's worthwhile to consider the present revenue multiple on the shares. Maxwell currently trades at an EV/revenue of 3, while promising growth tech companies can often support multiples in the high single digits or low teens. This is not to suggest that Maxwell is 50% or more underpriced (it seems unlikely to capture the same margins, free cash flow productivity, and returns as those other tech companies), but it does suggest that the shares could still be worth serious consideration for risk-tolerant investors who can buy into a story that will take years to develop. (For related reading, see How To Use Price-To-Sales Ratios To Value Stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

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

Related Articles
  1. Investing

    The Rise of Corporate Venture Capital

    After the success of Google Ventures, corporate venture capital is an increasingly popular diversification and hedging tool for many large corporations.
  2. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  3. Investing

    What’s Plaguing Twitter and Yelp?

    Yelp and Twitter have recently become grounded in reality and unable to justify their sky-high stock valuations.
  4. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  5. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  8. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  9. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  10. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!