Thursday, June 5, 2014

* Ballard Power (BLDP) - Four Facts We Must Know; Is the Option Market Mispricing Risk?

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BLDP is trading $3.73, up 2.5% with IV30™ down 1.3%. The Symbol Summary is included below.

Provided by Livevol

Ballard Power Systems Inc. (Ballard) is engaged in design, development, manufacture, sale and service of fuel cell products for a variety of applications, focusing on motive power (material handling and buses) and stationary power (back-up power and distributed generation).

Conclusion
1. This company booked fewer sales in 2013 than it did in 2010.  Did you know that?
2. Gross margins are rising, and hit their highest level in four years in 2013.
3. Operating margins, pre-tax margin and profit margin are all lower in 2013 than any year in the prior three.
4. Implied volatility (the forward looking risk in the stock price per the option market) is low while the firm has seen swings of +600%, -66% and +32% all in the last two-years.

This is a stock, volatility and fundamentals note on one of the many favorite MOMO stocks in the alternative energy/battery realm. To read my notes on FCEL (yesterday) and PLUG, you can click on titles, below:

FCEL - Earnings Postmortem & How This Growth Story Just Isn't... At All...

PLUG - All the Facts. Is the Option Market Under-pricing Risk?



Let's start with the BLDP two-year stock chart below.

Provided by Charles Schwab

It's a little hard to see, but at the top right hand corner, we can see that BLDP is up 212.61% in this time frame.  It was up more, a lot more to $8.38 (+604%), then fell back down to $2.83 (-66%), and now is up ~32% in a month.

Let's just say, this stock has been whipsawing and feels a multiplier effect of whatever the MOMO swing does.

But, while there is insane volatility, there are a few very curious phenomena occurring that would have you believe this was a calm and steady equity.  First, it's the option market that reflects calm. Let's turn to the IV30™ chart in isolation, below.

Provided by Livevol

The implied volatility is the forward looking risk in the equity price as reflected by the option market (IV30™ looks forward exactly 30 calendar days).  We can see a huge drop off in implied volatility from a peak well before earnings, then through an earnings release (the blue "E" icons represent earnings dates) and finally to today where volatility sits at 86.6%.

Now, 86.6% IV30™ isn't "low" for a normal stock in the S&P 500 (or whatever), but this thing has seen an implied as high as 167%, so 86% is far from a high, and is in fact in the 27th percentile on an annual basis.

English: The option market reflects relatively (to its own history) low risk for BLDP for the next 30-days.  Hmm...

The second phenomenon that points to a sort of calm (rather than a storm as we see in the equity price) is the financials.  First, let's look at annual revenue for the last four-years.

Provided by NASDAQ.com

I note two very important phenomena:

1. This company booked fewer sales in 2013 than it did in 2010.  Did you know that?
2. The revenue numbers over the four year period (comparing 2010 to 2013) are trivially small. Or, even, "calm."

Next, let's turn to the profitability ratios.

Provided by NASDAQ.com

The good news is the gross margins are rising, and hit their highest level in four year in 2013.

The bad news, operating margins, pre-tax margin and profit margin are all lower in 2013 than any year in the prior three.

Growth story?

Here's another interesting fact, BLDP has been public since late 1995.  It may be a new name in the news, but it is not a new name.

Finally, the Options Tab is included below.

Provided by Livevol

Using the at-the-money (ATM) straddle we can see that the option market reflects a price range of [$2.95, $4.05] by the close of trading on Jun 20th.


  • If you believe the stock will be outside that range on expiry or any date before then, then you think the volatility is too low.
  • If you believe that range is too wide, and that the stock will definitively be in that range on expiration, then you think volatility is too high.
  • If you're not sure, and can make an argument for either case, then you think volatility is priced just about right.

This is trade analysis, not a recommendation.






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