Micro-cap defense contractor Arotech Corporation (ARTX) saw its stock climb more than 35 percent on Tuesday following news that the company had received $2 million in orders for lithium-ion batteries from two major defense companies. However, the more-likely catalyst for the day’s move was actually a bullish analysis of the stock published on Seeking Alpha by 3D Analytics.
Article Pumps Stock, Gets Results
The Seeking Alpha article highlighted several reasons for investors to be optimistic about Arotech, including dramatically increasing demand for its battery technology due to the expanded use of drones and unmanned technology, the potential to expand use of its lithium-ion batteries into the consumer sector via electric cars, and the potential for an iron-flow battery that could be a boon to renewable energy sources and improve the power grid.
The article was released at 11:39 am, prior to which Arotech had been trading very close to its share price from Monday’s close. However, once the Seeking Alpha piece was up, the stock started to take off, quickly climbing to around $5.45 from around $4.15 a share. After a brief retreat, the stock surged again before the final bell and saw momentum carry it to new heights, reaching a peak of $6.34 and closing at $6.25 for a gain of 50.97 percent on the day.
Volume also jumped significantly immediately after the release of the article, ultimately tallying almost 9.63 million shares moved against a daily average of just under 1.3 million. With a float of just 19.52 million, that means that nearly one half of outstanding shares traded hands in a single day.
Reasons for Optimism Legitimate?
The Seeking Alpha article, which claims in its title that the stock was on the verge of quadrupling and should have a $16 a share price target, did lay out a strong case for Arotech to grow rapidly. Most notably, the potential contained in its battery technology was considerable, giving Arotech a chance to expand out of defense and into the consumer sector.
“We pride ourselves on finding cheap growth companies whose futures are bright, and since we began writing articles for Seeking Alpha, this is the most undervalued stock we have come across,” reads the article. “And we are even more excited about ARTX's future.”
The growth in the defense market for battery technology has been considerable as new technologies are adopted, and stands to be even greater moving forward, and the growth of sales for electric vehicles could also mean a wealth of new opportunities for Arotech’s existing product lines. However, it’s a pending technology Arotech is developing that could be the most intriguing.
The iron-flow batteries currently in development could be a game changer. The potential for renewable energy sources has long been hampered by its intermittent nature. Before solar can make a serious dent in the national power grid, a technology that can store energy captured during the day so that it can be used at night, during peak hours, is essential, something solar companies are well aware of.
As such, success in this area could mean expansion into a whole new segment for Arotech, something Chairman and CEO Robert C. Ehrlich seemed well aware of when he announced promising results from lab tests on March 6.
"We are very pleased with the results from lab tests on this new technology, which opens a huge new market for us,” he said. “While flow batteries themselves are not new technologies, with over fifty flow batteries installed globally as at the end of last year, our design uses a patent-pending iron chemistry providing the highest ROI, with the lowest total lifecycle, capital and maintenance costs. While this will be a multi-year development effort until commercialization, we believe that given the sheer size of the market, which is expected to exceed $400 billion by 2020, this is a project highly worthy of our R&D investment. I applaud the capabilities of our R&D team in their ongoing development and ability to push the realms of possibility in the battery space."
New Orders for Battery Division
While the tremendous potential for future growth has 3D Analytics and others excited, Monday also brought news of significant present-day gains. The company’s battery division received orders for $2 million worth of lithium-ion batteries to replace lead-acid batteries in military vehicles.
"We have invested in the development of batteries for military vehicles using Lithium-Ion technology replacing the more traditional Lead-Acid chemistry,” said Ehrlich. “While Lithium-Ion provides a much higher energy density, the challenge is in managing and protecting what is a more volatile battery chemistry. The technology underpinning our battery management systems which protect these batteries is sophisticated, advanced and ideal for the tough military environment."
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