By: Jimmy O’Brien, AIM Student at Marquette University
Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.
• Ameresco, Inc. Class A (NYSE:AMRC) engages in the provision of energy services, including energy efficiency, infrastructure upgrades, asset sustainability, and renewable energy solutions.
• AMRC is in a growing industry with $10bn annual TAM.
• The company has a unique opportunity in municipalities as their budgets are constrained from the pandemic.
• Financial performance has exceeded analyst expectations and will continue to be an outperformer moving forward.
• AMRC should continue to be held in the AIM small cap equity portfolio.
Key points: Ameresco, Inc. is a provider of solutions that allow customers to reduce energy consumption, lower costs, and realize environmental benefits. The stock is positioned well to benefit from the social movement towards more environmental conscience energy sources. This creates a massive market opportunity with ~$10bn annual TAM for Ameresco’s solutions. The solutions ability to save their customers money creates immediate returns on the investment and creates a sizable moat to legacy energy products.
With COVID-19 constraining municipalities budgets, Ameresco has a unique opportunity to enter new markets. Currently, around half of municipalities have converted to LED street lighting solutions.. There has been a massive decline in LED prices leading to an opportunity for municipalities to save 60-70%, compared to their legacy lighting systems. Ameresco is the largest ECSO provider for municipalities and as they look for immediate savings, AMRC should have a large tailwind moving forward.
Ameresco has proven to be resistant to the economic shutdown caused by the pandemic. The company was still able to obtain double digit revenue growth, exceeding the expectations in the original pitch. AMRC has had slight gross margin compression, due to increased expenses related to COVID-19 protocols, but were able to mitigate this with a 12% reduction to operating expenses. Their financial stability is impressive in this environment and AMRC is in a position for sustainable growth moving forward.
What has the stock done lately?
The stock has performed extremely well the past 3 months up 33%. The stock dropped 40% in the beginning of March, in line with the overall market. Since that time, it has recouped those losses and moved into all time highs. Even with the large increase in price, AMRC has not seen much movement in their valuation multiples, implying that they are still fairly priced.
Past Year Performance: AMRC has increased 158% in value over the past year, but the stock seems to still be in a position to continue these bullish returns. They are specialty players in a growing industry with promising short-term and long-term growth initiatives.
AMRC was added to the AIM small cap portfolio at a price of $16 and is currently trading at 38.02, representing a 137% increase. This well exceeds the price target of $19.10, but I believe there are still positive things to come for the stock. They are in a growing market that is going to be more crucial as global warming continues to be on the political agenda. Ameresco has successful managed their way through the pandemic and recognized new opportunities for growth. Overall, I believe this remains a strong hold for the AIM small cap portfolio and will continue to generate alpha for the foreseeable future.