(B)(N) BLD Ballard Power Systems Incorporated

Deal Book. Ballard Power Systems Incorporated is a “penny stock” and has never paid a dividend. It’s primarily a research & development company but does sell products – and has manufacturing facilities in Burnaby, British Columbia, and Tijuana, Mexico – and provides technical services to a roster of very distinguished global clients – including Volkswagen, Daimler AG, Ford, Toyota, Nokia Siemens, Automotive Fuel Cell Cooperation (AFCC), and Azure Hydrogen Corporation of Beijing , to name a few – and last year netted $1 of losses for every $1 of sales (sales $43 million; net income from operations ($43) million) which is a kind of distinction, and not one restricted to just research and pharma companies, but doesn’t explain its stock price which ran from $0.75 to $2.50 to a more placid $1.50 at the present time (please see Exhibit 1 below).

To explain its stock price, it usually helps to look under the covers for a small-cap and thinly traded stock, and we note that the company is getting some attention from new institutional investors: Tenor Capital Management Company LP recently picked up 1.4 million shares at $1 per share, to join Platinum Investment Management Limited which has $1.7 million shares at $1 per share, and they are joined by two other capital management firms to now hold a combined 4% stake in the company, earnings notwithstanding. Undoubtedly, some investors thought that $1 per share was better than $0.50 per share and grabbed the opportunity, which explains the spikes and the pits.

Ballard Proton Exchange Machine (PEM) Technology

In general, of course, we’re not interested in spikes, pits and valleys of the past, and we take the Risk Price (SF) as our guide to the future – because we know that “road” and it is our “foundation” to “risk averse” investing – but investors and researchers keep looking for new widgets in “earnings”, “earnings surprise”, and “herd behavior” (momentum investing) to explain “stock prices” but never take the trouble to define what they are – as if the numbers were stock prices – which they aren’t – and so it’s not surprising that they get “funny” results but re-assuring that they do (Certified General Accountants (CGA) Canada, June 5, 2013, Empirical Testing of the Momentum Effect in Canadian Capital Markets).

Our estimate of the downside due to the demonstrated stock price volatility is minus ($0.50) in the next quarter and, therefore, we would not be surprised by any price between the current $1.50 and $1 or $2.

It is trading above the Risk Price (SF) of $1, but there are no options, and no dividends, and to buy it at $1.50 today would create an exposure of $0.50 per share and the hope that the institutions are not just speculating. To find out, we’d just call them and ask them what they want for their stock. Simple.

Exhibit 1: (B)(N) BLD Ballard Power Systems Incorporated – Risk Price Chart

Ballard Power Systems Incorporated is engaged in the design, development, manufacture, sale and service of fuel cell products for a variety of applications, focusing on motive power and stationary power.

(Please Click on the Chart to make it larger if required.)

From the Company: Ballard Power Systems Incorporated engages in the development and commercialization of proton exchange membrane fuel cells worldwide. The company is primarily involved in the design, development, manufacture, sale, and service of fuel cell stacks, modules, and complete systems for various applications in the motive and stationary power markets. It also focuses on the development of fuel processing components and systems for use in fuel cell applications, as well as provides engineering solutions for various fuel cell applications. The company, through its interests in Dantherm Power A/S, develops clean energy backup power systems through utilization of hydrogen fuel cell technology. Ballard Power Systems Inc. was founded in 1979, has 400 employees, and is headquartered in Burnaby, Canada.

The Price of Risk

The calculated Risk Price (SF) is a provably effective estimate of the “price of risk” which is “the least stock price at which the company is likeable” (Goetze 2009) and “likeability” is determined by the demonstrated factors of “risk aversion” – we want to keep our money and obtain a hopeful return above the rate of inflation – and the properties of portfolios of such stocks. Stock prices that are less than the price of risk can be said to be “bargain prices” but with the risk attached that the company might never get a higher price other than that due to ambient volatility or “surprise”; on the other hand, investors who are willing to pay the “full price” above the price of risk, and buy and hold the stock at those prices, must also be confident, and have reason to believe, that the company will produce those values, absent new information.

Please see our Posts, The Price of Risk, August 2012 and The Nash Equilibrium & Its Stock Price, October 2012, for more information on the theory.

To see what else “risk averse” investing can do for us, please see our recent Posts, The Wall Street Put, April 2013, and earlier Posts such as The Dow Transports, March 2013, or The Risk Adjusted Dow, March 2013, or The Canada Pension Bond, February 2013, and for a more colorful description of investment risk and the application of the “price of risk” to mergers & acquisitions, please see our Post, Bystanders & Collateral Damage, April 2013.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™“
Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com. Disclaimer Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.