Polar Power, Inc. (POLA - Get Rating) in Gardena, Calif., designs, manufactures, and sells direct current (DC), power generators, renewable energy, and cooling systems in the United States and internationally. It offers DC base power systems, DC hybrid power systems, and DC solar hybrid power systems. The shares of the green energy company have slumped 72.3% in price over the past year and 37.6% over the past six months. However, the stock has gained 18.9% over the past month to close the last trading session at $3.72.

While POLA has reported increasing demand for its DC power systems from its telecommunications customers, it is also focusing on diversifying its customer base and selling into non-telecommunication markets and applications. Over the last year, the company has invested in developing backup power systems with increased power that utilize larger engines and improved emission control systems. POLA believes that the rapid deployment of 5G networks should enhance its market opportunities. Furthermore, the company is innovating its products to capitalize on the EV charging space and plans to develop new configurations of DC power systems, battery storage, and solar products, which should drive growth.

However, POLA’s revenues have declined at a 9.1% CAGR over the past three years and 3.8% over the past five years.

Here’s what could shape POLA’s performance in the near term:

Bleak Trailing-12-Month Financials

POLA’s trailing-12-month gross profit and operating income stood at negative $178,000 and $7.16 million, respectively. Also, its trailing-12-month EBITDA came in at negative $6.59 million, while its net income and EPS came in at negative $5.48 million and $0.44, respectively. Moreover, the company’s trailing-12-month net operating cash flow and levered free cash flow totaled negative $7.29 million and $4.64 million, respectively.

Poor Profitability

POLA’s 44.46% and 36.96% respective EBITDA and net income margins are substantially lower than the 13.24% and 6.50% industry averages. Also, its negative 31.32% levered FCF margin compares with the 4.28% industry average.

Moreover, POLA’s negative 29.08%, 20.29%, and 20.33% respective ROE, ROA, and ROTC compare with the 13.73%, 5.12%, and 6.83% industry averages.

Power and Renewable energy Industry Headwinds

The power and renewables sector has gained  importance over the past few years as countries worldwide have increasingly emphasized green energy initiatives. But while long-term growth potential seems vast, the industry could be subjected to near-term headwinds like cost inflation. Increased polysilicon, steel, copper, and aluminum pricing combined with logistical disruptions have forced equipment price increases over the last year and might remain a significant challenge this year too., impacting margins. Cost increases could further strain POLA’s already depleted margins.

Unfavorable POWR Ratings

POLA has an overall D rating, which translates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has an F grade for Stability, consistent with its 24-month beta of 2.07.

POLA has a D grade for Value. This is justified because its trailing-12-month EV/Sales and Price/Sales of 2.80x and 3.10x, respectively, are 52.7% and 111.1% higher than the industry averages of 1.83x and 1.47x.

Among the 19 stocks in the F-rated Solar industry, POLA is ranked #8.

Beyond what I have stated above, you can also view POLA’s grades for Sentiment, Growth, Momentum, and Quality here.

View the top-rated stocks in the Solar industry here.

Bottom Line

The increasing adoption of green energy and decarbonization initiatives should provide immense growth opportunities for POLA in the coming years. However, considering its lean profit margins and the persistent inflationary headwinds, we think it could be best to avoid the stock now.

POLA shares rose $0.08 (+2.15%) in premarket trading Wednesday. Year-to-date, POLA has gained 3.91%, versus a -10.27% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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