Established in 2005 with the aim of developing hydrogen-based synthetic fuels that can be used as an alternative other natural gas-derived fuels in metal cutting and other industries, Phoenix, Arizona-based Taronis Technologies (TRNX) has gotten off to a rough start.
In fact, the company has only earned a full-year profit once in its history, and that just barely — about $24,000 — and nearly a decade ago. In contrast, the company’s losses amount to more than $78 million accrued over 15 years of work.
Taronis stock — and Taronis stockholders — have arguably had an even worse time of things. The company’s share price has lost 99.998% of its value over the past five years, including more than a 90% drop over just the last year alone.
Despite all this, H.C. Wainwright analyst Amit Dayal reiterates a Buy rating on Taronis stock with a $2.00 price target, which implies nearly 326% from current levels. (To watch Dayal’s track record, click here)
The most obvious answer would appear to be: Momentum. Between Friday of last week and Monday of this, Taronis stock soared 77% on news that the company has just signed a contract to sell “up to” 30 gasification units” to an unspecified “Turkish organization” over the next three years. As the company’s press release advised, the first 15 units will be sold over an 18-month period, followed by a potentially exercisable “option” to sell a further 15 units over the next 18 months.
And these units won’t come cheap. “Each gasification unit carries an upfront purchase price of $3.75 million,” said Taronis, “and would include a 10 year maintenance contract for an additional $1.75 million per unit.” If you add all that up and multiply by 30, we’re talking potentially $165 million in sales revenue — and Taronis says it’s also getting “a perpetual 3% royalty on all gas produced” from these units.
What’s more, “the Company estimates that Turkey may likely ultimately require approximately 75 units to service the entire economy” — so go as long as we’re imagining pie in the sky possibilities here, go ahead and multiply that number by another 2.5x — $412.5 million.
For a company like Taronis, which did all of $9.7 million in sales last year, this is obviously a big deal — assuming it’s real.
Dayal, apparently taking Taronis’s news release more or less at face value, works the numbers and predicts that the company will end this year with $24.3 million in revenue — more than twice the amount of business it did last year — and then proceed to grow that number at a 28.5% annualized clip, eventually hitting $109.1 million in annual sales by 2025. Moreover, Dayal predicts that operating expenses will decline in the first year of this contract, then grow ever so slowly — 5% per year — from 2020 to 2025.
Result: Beaucoup profits for Taronis, a $2 per share valuation, and a “buy” rating from Dayal.
Admittedly, there are risks, among which Dayal lists “merger integration risk,” “execution risk,” “commodity price risk,” and “dilution risk.”
To which I’d add just one more: Mirage risk. As in, if this whole multi-hundred-million Turkish opportunity turns out to be an illusion, investors who bought Taronis stock hand over fist earlier this week, could soon rue the day. (See price targets and analyst ratings on TipRanks)