initiating with BUY, $13.50 price target
on the flipside Dallas Salazar had this to say in Seeking Alpha
Aspen Aerogels' IPO Should Be Treated As A Case Study For What To Avoid
Jun. 18, 2014 12:21 AM ET
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
ASPN has had to raise funds in each of the last three years to stay solvent.
ASPN has had to materially slow CAPEX and previously expressed growth initiatives to stay solvent.
ASPN will need in between $80-$100 million in future capital to complete its growth strategy in its entirety.
Aspen Aerogels, Inc. (ASPN) recently held an IPO on 6/13/2014 and sold 7,500,000 shares at $11.00/share, considerably lower than the targeted range of $14.00-$16.00. The company raised proceeds of $82.5 million. The shares last closed at $10.25 for an IPO to date performance of -6.8%, leaving the company with a market cap of $211 million.
This article will make the argument that ASPN is worth considerably less than where it currently trades based on the company's distance from profitability, low visibility of positive cash flow generation in the near and mid terms, and because of the certain debt and/or dilution that will soon come to shareholders and the company. The company has many other problems that the article will detail but those are the primary factors behind the bear thesis to be presented.
Who is Aspen Aerogels, Inc. and what do they do?
ASPN is "an energy technology company that designs, develops, and manufactures innovative, high-performance aerogel insulation used primarily in large-scale energy infrastructure facilities" (SOURCE: ASPN S-1).
The company makes an insulation product that has several distinguishable benefits over the current widely used insulation products of mineral wool, foamed plastics, specialty materials, and fiberglass. Some of the benefits of using ASPN's proprietary insulation blankets are their compact design, reduced installation time and costs, freight and logistics cost savings, reduced system weight and required storage space, enhanced job site safety, reduced incidence of corrosion, and increased fire protection - all significant upgrades over existing products.
So why am I coming into this IPO so bearish? Well, when it comes to the end markets that ASPN targets (specifically the energy infrastructure markets but also the more general insulation market), there are few occasions where the cost savings of switching to ASPN's product outweigh the short and mid-term implementation costs and even fewer instances where making the switch would be required of the purchasing company to continue doing business. What I'm saying is that companies aren't rewarded for doing anything more than the bare minimum when it comes to insulation, and that includes providing a safer environment, providing a preventative environment for things like fire, or any other value-prop that ASPN presents, as long as the prospect company is currently meeting the regulatory minimums and can operate efficiently with the cheaper existing products. They have no direct incentive outside of a few rare occasions (a few are detailed in the Case Study section of ASPN's S-1 filing on P. 113) to take on the increased CAPEX that comes with the product.