Don’t Expect Super Returns From American Superconductor Stock

Let’s be perfectly honest. Many traders had never even heard of American Superconductor (NASDAQ:AMSC) stock until Tesla (NASDAQ:TSLA) CEO Elon Musk brought up the topic of electricity shortages.

Suddenly, AMSC stock was headed for the moon – but don’t buy any shares until you’ve conducted your due diligence on American Superconductor.

Headquartered in Massachusetts, American Superconductor provides power solutions for public and private entities. In fact, the U.S. Navy is one of American Superconductor’s clients.

Ultimately, AMSC stock might deserve a place in your portfolio. However, I don’t recommend owning more than a few shares, even if Musk drummed up some interest in American Superconductor for a little while.

AMSC Stock Zooms and Crashes

American Superconductor didn’t report its first-quarter fiscal 2023 results until Aug. 9. So, why did the American Superconductor share price suddenly gain 47.8% on the morning of Aug. 1, eight days before the earnings event?

Was there a leak of the quarterly earnings data? I doubt it, since American Superconductor’s results were fine but not spectacular (as we’ll discuss in a moment). American Superconductor’s arrangement with the Navy was made before Aug. 1.

I suspect that the catalyst was commentary from Musk about the possibility of U.S. electricity shortages, which the Tesla CEO apparently believes could occur as soon as 2025.

“I can’t emphasize enough: We need more electricity,” and, “However much electricity you think you need, more than that is needed,” he said.

Musk has the clout to move share prices, but not necessarily for the long term. Thus, AMSC stock soared to $15 and even $17 briefly (probably because of Musk’s comments) but then crashed back down to $8 and change.

The Financials: Positives and Negatives

I wouldn’t recommend investing in American Superconductor just to bet on a U.S. electricity shortage by 2025. That’s too speculative, in my opinion.

On the other hand, it could make sense to take a small position in AMSC stock because American Superconductor’s financials are improving. Just be aware that the company still has some work to do before it can achieve profitability.

Here are the details on American Superconductor’s first quarter of fiscal 2023. First of all, the company generated revenue of $30.3 million, which is substantially better than the $22.7 million reported in the year-earlier quarter.

According to American Superconductor, “[H]igher new energy power systems revenues” drove the year-over-year total-revenue improvement.

Now turning to the bottom-line results, American Superconductor reported a net earnings loss of $5.4 million (19 cents per share). The company posted a net loss of $8.7 million (32 cents per share) in the year-earlier quarter.

So again, we’re seeing improvement with American Superconductor. Still, the fact that American Superconductor is unprofitable may be a deal-breaker for some prospective investors.

Another concern is that the company’s cash, cash equivalents and restricted cash declined on a year-over-year time frame. Therefore, investors should keep tabs on American Superconductor’s upcoming reports to see if the company is demonstrating financial discipline.

AMSC Stock Is Fine for a Very Small Position

The financial press may have focused on American Superconductor for a hot minute because of Musk’s comments. However, this isn’t a sufficient reason for sensible financial traders to invest in American Superconductor.

Still, I invite you to conduct your due diligence on American Superconductor. The company does business with the Navy and its financials are improving in some respects.

Yet, American Superconductor’s financials aren’t perfect, so be on the lookout for upcoming reports from the company. And, if you intend to own AMSC stock, be sure to maintain a very moderate position size.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.