Chances of Ocean (AMEX:OPTT) to drop in August

Ocean Power Tech is scheduled to announce its earnings tomorrow. While some baby boomers are getting worried about industrials space, it is reasonable to review Ocean Power Tech as an investment alternative. Here we also measure the ability of Ocean Power to meet its long-term debt obligations, such as interest payments on debt, the final principal payment on the debt, and any other fixed obligations like lease payments.
Published over a year ago
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Reviewed by Vlad Skutelnik

The company currently holds 938 K in liabilities with Debt to Equity (D/E) ratio of 0.01, which may suggest Ocean Power is not taking enough advantage from borrowing. Ocean Power Tech has a current ratio of 15.17, suggesting that it is liquid enough and is able to pay its financial obligations when due. Debt can assist Ocean Power until it has trouble settling it off, either with new capital or with free cash flow. So, Ocean Power's shareholders could walk away with nothing if the company can't fulfill its legal obligations to repay debt. However, a more frequent occurrence is when companies like Ocean Power Tech sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Ocean to invest in growth at high rates of return. When we think about Ocean Power's use of debt, we should always consider it together with cash and equity.
Ocean Power financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures the total debt position of Ocean Power, including all of Ocean Power's outstanding debt obligations, and compares it with the equity. In simple terms, the high financial leverage means the cost of production, together with running the business day-to-day, is high, whereas, lower financial leverage implies lower fixed cost investment in the business and generally considered by investors to be a good sign. So if creditors own a majority of Ocean Power assets, the company is considered highly leveraged. Understanding the composition and structure of overall Ocean Power debt and outstanding corporate bonds gives a good idea of how risky the capital structure of a business is and if it is worth investing in it. Please read more on our technical analysis page.

Watch out for price decline

Please consider monitoring Ocean Power on a daily basis if you are holding a position in it. Ocean Power is trading at a penny-stock level, and the possibility of delisting is much higher compared to other stocks. However, just because the stock is trading under one dollar, does not mean it will be marked for deletion. Most exchanges require public instruments, such as Ocean Power stock to be traded above the $1 level to remain listed. If Ocean Power stock price falls below $1 for 30 consecutive trading days, the exchange can delist it. Once the company reaches this point, they will be sent an initial price violation notice directly from an exchange.

Understanding Ocean Total Liabilities

Ocean Power Technologies liabilities are broken down into two parts on the balance sheet. These are short-term (or current) obligations and long-term debt. Ocean Power Technologies has to fulfill its short-term liabilities in this reporting year and should be no more than 12 months old. Long-term debt, on the other hand, is anything beyond the 12-month payment timeframe. Common short-term liabilities found on Ocean Power balance sheet include debt obligations and money owed to different Ocean Power vendors, workers, and loan providers. Below is the chart of Ocean short long-term liabilities accounts currently reported on its balance sheet.
You can use Ocean Power Technologies financial leverage analysis tool to get a better grip on understanding its financial position

How important is Ocean Power's Liquidity

Ocean Power financial leverage refers to using borrowed capital as a funding source to finance Ocean Power Technologies ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. Ocean Power financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to Ocean Power's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of Ocean Power's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets). Please check the breakdown between Ocean Power's total debt and its cash.

Detailed Perspective On Ocean Power

The entity reported the previous year's revenue of 1.6 M. Net Loss for the year was (18.92 M) with loss before overhead, payroll, taxes, and interest of (1.07 M).

Our perspective of the newest Ocean Power gain

Newest maximum drawdown is at 26.82.
As of the 12th of July 2022, Ocean Power holds the coefficient of variation of (536.32), and Risk Adjusted Performance of (0.26). Compared to fundamental indicators, the technical analysis model allows you to check existing technical drivers of Ocean Power, as well as the relationship between them. Put it differently, you can use this information to find out if the company will indeed mirror its model of past market data, or the prices will eventually revert. We were able to interpolate and analyze data for nineteen technical drivers for Ocean Power Tech, which can be compared to its competitors. Please check Ocean Power Tech semi deviation, jensen alpha, as well as the relationship between the Jensen Alpha and semi variance to decide if Ocean Power Tech is priced some-what accurately, providing market reflects its current price of 0.63 per share. As Ocean Power Tech is a penny stock we also suggest to check out its total risk alpha numbers.

The Bottom Line

Whereas many of the other players within the electrical equipment & parts industry are still a little expensive, even after the recent corrections, Ocean Power may offer a potential longer-term growth to private investors. On the whole, as of the 12th of July 2022, our primary 90 days buy-hold-sell recommendation on the firm is Strong Sell. We believe Ocean Power is currently overvalued with very high odds of financial distress for the next two years.

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Editorial Staff

This story should be regarded as informational only and should not be considered a solicitation to sell or buy any financial products. Macroaxis does not express any opinion as to the present or future value of any investments referred to in this post. This post may not be reproduced without the consent of Macroaxis LLC. Macroaxis LLC and Raphi Shpitalnik do not own shares of Ocean Power Technologies. Please refer to our Terms of Use for any information regarding our disclosure principles.

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