It's certainly been an interesting two days for Quantum Fuel Systems Tech Worldwide (QTWW) shareholders, if nothing else. The company, which specializes in alternative-fuel systems for vehicles, has had a whipsaw two days on Tuesday and Wednesday.
The stock plunged 51.9 percent on Tuesday after news that its main competitor, Hexagon Lincoln (HXGCF) , was entering into a joint venture with its main customer, Agility Fuel Systems, to supply compressed natural gas (CNG) cylinders for fuel systems that are largely used in large trucks or busses.
Of course, as far as the markets are concerned, there’s no better way to win back a spurned investor than with a bounce back in share price. And that’s at least partially what Quantum Fuel’s investors got on Wednesday as shares bounced as much as 52.6 percent. The stock pulled back from that high, which it hit just after noon Eastern time, but stayed at a share price over $4 apiece, a more-than 35 percent gain, heading into the final hour of trading.
It’s ultimately relatively little solace as the two-day losses are still just under 35 percent, but it’s clearly a welcome development for anyone whose portfolio took a serious hit yesterday.
Two factors appear to have driven the day’s big jump. The first is Tuesday’s after-market-close announcement that Quantum had entered into a long-term agreement with Ryder Systems (R) for CNG systems that company will be using to reduce costs for customers leasing CNG vehicles.
"This new relationship is an early indicator of the company's ability to provide the industry with fully integrated systems and at the same time diversify its existing customer base by leveraging its core expertise in advanced tank technologies and systems integration and being a one-stop-shop for OEMs and fleets for complete CNG fuel systems," said Quantum in a statement.
The second factor is that several technical indicators pointed towards Quantum being severely oversold after yesterday’s plunge. The company was trading well below its lower Bollinger Band, its 14-day RSI dipped below 20.0 (anything under 30.0 is considered oversold territory), and its 14-day stochastic RSI had reached 0.00 (anything below 0.20 is considered oversold). As such, the good news combined with these technical signs likely helped to bolster the stock today.
That said, a series of technical indicators showing a stock as oversold the day after it lost over half its value shouldn't really come as a surprise to anyone, so it seems likely that the Ryder deal is the more prevelant factor.
But things may not be so sunny for Quantum moving forward based on some of its fundamental factors. A look at a DuPont Report for Quantum would seem to indicate that the company isn’t as healthy as it could or should be.
The DuPont system for analysis involves breaking the crucial metric return on equity (ROE) into three separate factors and comparing each to the industry average. Ideally, two of these factors, the equity multiplier and asset turnover, should be as close to industry average as possible while the third, net margin, should be as high as possible.
In the case of Quantum, the ROE figure is well below industry average and for all the wrong reasons. Not only is Quantum’s net margin well below the industry average, its equity multiplier is well above, indicating that the company is carrying a significant amount of debt. What’s more, year-over-year, each of these indicators are moving in the wrong direction, with 2013 showing a higher equity multiplier, lower net margin, and lower ROE than 2012.
This might give some indication as to why the company’s stock appeared to be in trouble prior to Tuesday’s slump, falling over 30 percent in the month of April. Clearly, if the new deal with Ryder creates a truckload of new revenues and profits, this could all end up in the category of ancient history. And, of the three analysts covering the stock, it has two moderate buy and one strong buy ratings, so it’s not without its proponents.
However, the iffy fundamentals combined with the fact that the stock is coming off a rapid climb to a 52-week high of $11.25 a share late last year (which was potentially sparked by a 1:4 stock split last August) mean that investors in Quantum appear to have reason at least some for concern.
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