Stock Analysis & Ideas

Ocean Power Technologies’ Q1-2023 Results: Worsening Losses are Concerning

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Ocean Power Technologies has surface-level appeal as a hydroelectric power business with a million-dollar government contract. On the other hand, caution is advised, as Ocean Power’s quarterly results reveal that the company is, financially speaking, underwater.

Ocean Power Technologies (NYSE American: OPTT) is a right-place, right-time company – or so it would seem, at least. The company had a lot to prove to financially-minded investors in its just-released Fiscal Q1-2023 earnings report. However, I am neutral on Ocean Power Technologies stock as the company didn’t demonstrate progress in pursuit of profitability.

Headquartered in New Jersey, Ocean Power Technologies provides maritime data as well as power harnessed from the renewable energy of ocean waves. It’s a high-conviction business to be involved in, as governments around the world are implementing clean power initiatives in the 2020s. For example, President Joseph Biden signed the Inflation Reduction Act, sometimes also called the Clean Energy Bill, into law in August.

This law earmarks $370 billion toward national efforts to reduce America’s greenhouse gas emissions 40% below 2005 levels by 2030. It’s part of a global green energy trend that should benefit hydroelectric energy companies like Ocean Power Technologies. However, OPTT stock traders might not be convinced yet that the company is financially viable enough to provide superior value to the shareholders.

Thus, there’s a lot at stake with each and every quarterly earnings report. If Ocean Power Technologies can’t prove itself on the fiscal and operational fronts as a competitive hydro-power business, shareholders might find themselves adrift and rudderless.

Ocean Power Technologies Had Notable Achievements in FY2022 

From an operational standpoint, Ocean Power Technologies moved full steam ahead in Fiscal Year 2022. It could be argued that, for such a small company (market cap of $56 million), Ocean Power achieved a lot during a short period of time.

Probably the most notable accomplishment during FY2022 was Ocean Power’s acquisition of Marine Advanced Robotics (MAR). Based in California, MAR develops and manufactures autonomous surface vehicles, or “uncrewed equipment in waters around the world.” These surface vessels range from eight feet (2.4 meters) to 100 feet (30 meters).

MAR’s price tag, at $11 million, was hefty but will likely provide Ocean Power Technologies with robust revenue in the long run. The company contends that MAR expands Ocean Power’s “commercial offering into autonomous vehicles for maritime data services” and expects MAR to contribute roughly $2 million to Ocean Power’s Fiscal Year 2023 revenue.

After the MAR acquisition, Ocean Power Technologies’ most interesting recent achievement would be a contract from the U.S. Department of Energy (DOE) that could be worth over $1 million. Specifically, the DOE selected Ocean Power “for the Phase II development of a next-generation wave energy converter.” Over a period of 18 to 24 months, Ocean Power Technologies will receive up to $1,097,212 from the DOE for this contract.

After Disappointing Past Results, OPTT Needed a Home Run

These notable achievements can provide some encouragement to Ocean Power Technologies investors. However, at the end of the day, the bottom line is the bottom line. Can Ocean Power demonstrate earnings growth? This question should be top-of-mind for the company’s shareholders, as Ocean Power’s past results were lackluster at best and disappointing at worst.

This isn’t to suggest that Ocean Power Technologies has failed on all fiscal fronts. In fact, the company increased its revenue to $756,000 during Q4 of its Fiscal 2022. Furthermore, for the full fiscal year, Ocean Power grew its revenue to $1.76 million.

On the other hand, as mentioned earlier, Ocean Power Technologies had to cough up a lot of dough to acquire MAR. Indeed, Ocean Power acknowledged the overhang of “expenses related to the acquisition of MAR” as the company’s selling, general, and administrative costs increased in recent quarters.

As a result, Ocean Power Technologies demonstrated no earnings growth whatsoever from Q4 FY2021 to Q4 FY2022. During both of those quarters, Ocean Power reported a net loss of ~$5.2 million – probably not what the company’s investors wanted to see.

Ocean Power Technologies’ Q1-2023 Results Came Up Short

If you’re only focused on revenue growth, then you might say that Ocean Power Technologies made the grade in its most recently reported quarterly results. Yet, bottom-line watchers will find a bright red flag as Ocean Power is, according to one crucial metric at least, moving in the wrong direction.

There’s no denying that, during Q1 of Fiscal 2023 (which ended on July 31, 2022), Ocean Power Technologies maintained a powerful pace of revenue generation. To be more specific, the company increased its revenue to $714,000, marking a vast improvement over the $272,000 of revenue achieved in Q1 FY2022.

Ocean Power Technologies President and CEO Philipp Stratmann exuded confidence, stating, “I remain encouraged with our ability to achieve our $9.0 million bookings target for Fiscal 2023.” That’s all fine and well, but did the company make any progress toward achieving a profitable profile?

The answer, regrettably, is no. As it turned out, Ocean Power Technologies’ quarterly net loss widened to $5.9 million. Contributing to this problem, no doubt, is the fact that Ocean Power’s quarterly selling, general, and administrative costs increased by $166,000 quarter-over-quarter.

Conclusion: Should You Consider OPTT Stock?

Ocean Power Technologies has a lot going for it. The company operates in an industry that should get a boost from the Inflation Reduction Act. It’s also encouraging that Ocean Power scored a government contract that’s potentially worth over $1 million. These factors may help Ocean Power Technologies maintain its impressive pace of revenue growth. Still, Ocean Power’s deepening quarterly losses are problematic. Therefore, it’s likely wise to stay docked on the sidelines rather than wade into the perilous market seas with OPTT stock.

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