Aspen Aerogels Q3 2024

Investment Analysis Clubs Saul’s Investing Discussions
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Surprisingly quiet here about $ASPN after their latest Q3 report.

$ASPN stock was already slumping before earnings, after hitting an all-time high around $33 per share in August. It’s now trading at around $17 per share.

If the market is wrong, this could be a huge opportunity. But just so I don’t get people’s hopes up, I don’t think the market is totally wrong to be knocking this stock down a few pegs.

Here’s my recap of what got the stock to this point:

  1. The company released preliminary earnings, showing revenue contracting QoQ—the first time since Q1 2023.

  2. ASPN received a $670M loan approval from the DoE.

  3. Trump’s win has created a mixed outlook: his stance on deregulation and bringing manufacturing back to America could impact ASPN’s business. While regulations are a significant growth driver, ASPN’s American-based manufacturing aligns with Trump’s rhetoric. But, based on price movement after the election, the market seems to view Trump as a net negative for $ASPN.

  4. The full earnings report broke down revenue by segment: Thermal barriers (PyroThin) and energy industrials.

  • Energy Industrials: This sector saw a significant contraction, largely driving the revenue drop. Had energy industrials held steady from last quarter, overall revenue would have grown by 6% QoQ.

If this were the whole story, I’d see ASPN as a huge opportunity. But there’s more:

  • PyroThin Growth Trend: QoQ growth for PyroThin has been slowing:
    • 62% → 23% → 25% → 12%

And the vast majority of revenue growth comes pyrothin, so this is the most critical revenue the company has.

Although 12% QoQ is still solid, the trend is concerning. Why did growth drop from 25% to 12%? No analysts addressed this in the conference call, nor did the company.

For some, the response might be “Revenue growth is lumpy sometimes!” That may be true, but I’d want to hear that from an authoritative source, such as management. Not just people on the internet making guesses.

The company’s annual guidance can give some insight. They projected $121M in revenue next quarter, which translates to 3% QoQ growth. While 3% isn’t remarkable, ASPN has a history of beating or raising guidance. In the past year, raises have varied from $10M to $60M:

  • A $10M beat would be 12% QoQ growth.
  • A $20M beat would mean 21% QoQ growth, pushing ASPN back into the “extraordinary” growth zone.

Conclusion:
With a market cap of $1.41B, ASPN is a very small company. It should have consistent, eye popping growth if it wants to stay in my portfolio. For now, I’ll keep an eye on it but I don’t plan on replenishing my position. Most of my position was sold after I saw the preliminary earnings.

Curious to hear what other people think about this one though. If I’m wrong, there is great potential here.

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I agree with you @ExponentialDave. I had a 3% position which after doing some analysis and hearing the earnings call, I decided to sell out.

I feel ASPN’s future looks bright but the next few quarters might be bumpy. And with such uncertainty, I think there are better opportunities out there to invest than keep my capital tied to ASPN.

The Mercedes deal they announced, doesn’t start to hit their numbers till 2027. The other one - Stellantis’ STLA - hits their bottom line starting late 2025. So in the mean time, ASPN can easily print a few sleepy quarters. And I am not certain how much of it, Mr.Market has discounted yet.

In addition, their upcoming quarters are competing with YoY 39%, 12% and 25% revenue growth. I fear the market may see this as rapidly falling revenue numbers.

Too much uncertainty for me to stay in. So I am out and will be watching from sidelines too.

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The company’s presentations acknowledge that GM’s Ultima batteries are key to their near-term growth. GM had been growing those decently well, but now with a possible/likely repeal of the EV subsidies in the US (Stellantis will probably kill some EV programs), GM terminating the Ultiima program, and future programs like Mercedes years away from production, hard to argue for this company at this point in time.

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