Best stock to invest in – Navy Buoys Up Ocean Power Tech

Best stock to invest in

by Debra Fiakas CFA

The last post, Grid
Connected Ocean Power
, highlighted the claim by the U.S. Navy
of the first grid connected ocean power generator in the
country.  Two wave power systems have been connected to the
electrical system at the U.S. Marine Base in Kanehoe Bay,
Hawaii.  The Navy is gathering performance data as part of its
on-going program to support renewable energy to perfect system
designs, installation strategies on-going maintenance.  That is
apparently not enough for the nation’s sailors.  Last week the
Navy announced an award of $250,000 to Ocean Power
Nasdaq) to support the design of a ocean power buoy especially
suited for military needs.

Ocean Power Technologies (OPT) already has its PB3 system
intended as a continuous power supply to ocean installations such as
equipment anchored to the sea-bed or deployed from an ocean vessel’s
deck.  Called the PB3, it is deployed near a
point-of-use in depths up to one kilometer.  The wave energy is
converted to electricity through a direct drive generator that
charges an on-board battery pack.   The Navy has already
had experience with the PB3.  It was in use off the New
Jersey shore during Hurricane Irene in 2011 as part of a
demonstration project run by the Navy.  Its power capacity is
near 8,400 watt hours per day.

The Navy design contract will take OPT in a new direction.  The
new design is to be self-contained and will have no external moving
components.  The Navy is looking for a highly reliable
renewable power source for mission critical sensors.  The first
phase of the contract involves design and testing.  If this
phase is completed successfully, the Navy has pledged an additional
$500,000 for additional design and testing of the entire power
conversion system.

In July 2016, OPT announced its first installation of a commercial
version of the PB3 also off the New Jersey coast.  A
month earlier the company had signed a lease agreement valued at
$975,000 with Mitsui Engineering and Shipbuilding for deployment of
a PB3 off Kozu Island in Japan.  Together the two
developments bring OPT significantly closer to commercial stage with
its ocean power technologies.

OPT is also known for its PowerBuoy system, which can
produce output in a range of 350 watts to 15 kilowatts depending
upon the installation characteristics.  The PowerBuoy
floats on the ocean surface above a seabed anchor.  A float
moves up and down with the waves along a central spar, driving a
mechanical system that converts the up and down motion to a rotary
motion in an electrical generator.  The company had earlier
partnered with Mitsui in anticipation of deploying the PowerBuoy
at Mitui’s Kozu Island project.  The two companies have
been working on an advanced algorithm for assessing ocean wave

The design contract with the Navy is most welcomed by a company that
has yet to record product sales let alone profits.  OPT is
financed by equity and recently raised $5.3 million in net proceeds
from the sale of common stock at $6.75 per share.  At the end
of July 2016, directly following the stock offering, the company had
$9.1 million in cash in the kitty.  OPT has been using about
$3.0 million per quarter to support operations, suggesting there is
about nine months breathing room for management.

OPTT shares are among few pure plays on ocean power
technology.  With advances in new product development and
interest from high-profile prospects, the company might seem
promising.  Still investors might be concerned about a $2.5
million contingent liability on OPT’s balance sheet related to
settlement of a class action lawsuit.  Although the company
expects liability insurance to cover as much as $2.5 million of the
original $3.0 million settlement, the liability still casts a shadow
across OPT’s balance sheet.

Debra Fiakas is the Managing Director of
Crystal Equity
, an alternative
research resource on small capitalization companies in selected

Neither the author of the Small Cap
web log,
Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein.

– Best stock to invest in

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