Hypersolar

Hypersolar Inc (HYSR) is an electric utility company that produces renewable hydrogen using sunlight and water. The company was founded in 2009 and is based in Santa Barbara, California. It is a micro-cap company with $10.5 million market value, working in a niche technology of producing green hydrogen. Recently the state of California mandated the production of green hydrogen, as a certain percentage of the total hydrogen fuel production. The company engages in the production of lowest cost renewable hydrogen available in the market today.

Advantage of Renewable Hydrogen

Renewable hydrogen is a clean and green fuel. Unlike hydrocarbon fuels, that produce harmful emissions, green hydrogen fuel produces pure water as the only by-product. Renewable hydrogen can be used for generating electricity, various industrial and chemical processes and hydrogen fuel cell vehicles. In the future, hydrogen can be used as an energy carrier, just like electricity.

What I like about HyperSolar

1) Hydrogen Industry has got good potential – Global hydrogen production volume is forecasted to grow by a CAGR of 5.6%, from 2011 to 2016. According to a report by Freedonia, global consumption of merchant and captive hydrogen is forecasted to increase 3.5% annually through 2018, to 290 billion cubic meters. The California Energy Commission made an announcement in March 2015, to invest $20 million for building ~50 hydrogen fuel stations. California has 10 such stations currently, being the largest number in any US state. Leading companies like Honda and General Motors also announced a partnership to bring hydrogen cars to the mass market by 2020.

“The ‘hydrogen highway’ has long been considered to be an ambitious and out of reach goal, but has now become a reality,” said Tim Young, CEO of HyperSolar. “As major auto manufacturers including Hyundai, Toyota and Honda continue to roll out hydrogen cars, it is imperative that these fueling stations are completed to support widespread consumer adoption. California will serve as the model for the rest of the country in terms of infrastructure, and we believe our technology will support the growing demand by producing completely renewable hydrogen at or near the point of distribution, in this case, a fueling station.”

Source: Yahoo Finance

2) Unique Technology – The company uses water and sunlight to produce hydrogen, which is environment friendly. Not only that, it also eliminates the need for conventional electrolyzers which are expensive and energy intensive. The Company’s technology includes HyperSolar H2Generator. Hypersolar manufactures nano-sized particles that maximum electron generation and utilization.

3) California government support – California has mandated that certain percentage of hydrogen fuel should be manufactured using renewable energy. This is a good news for renewable hydrogen in California, as the mandate will increase demand for green hydrogen.

Challenges

a) Deteriorating Financial Position – The biggest concern for HyperSolar is its deteriorating financials. HyperSolar will have a tough time in sustaining operations, till it is able to commercialize its technology. Though the technology looks promising and is also a pressing need, the company has been unsuccessful in growing revenues. Accumulated losses are growing and debt stands close to $10 million.  Companies like Hypersolar have to continuously dilute equity in order to raise funds. They are also sometimes sold off at extremely cheap values, if they run out of money. Some large start-ups in the alternative energy space such as A123 Systems, Miasole etc. have been sold for pennies to the dollar because they ran out of money, before being able to commercialize their technology.

Source: Yahoo Finance

b) Technology risk – Though the company has developed a breakthrough in technology, by using cost effective means and producing environment friendly hydrogen. But like in any other new industry there is a risk of invention of a new technology, which could replace the company’s existing technology.

Stock Performance and Valuations

HYSR is a penny stock with the attendant risks of the same. It has shown great volatility, from lows of $0.0035 to highs of $0.135 earlier in 2014. The current 52 week stock price range is $0.01-0.05, with the stock currently trading at $0.02. The P/B stands at -1.1x.

Competition

The Company competes with Air Products and Chemicals Inc and Air Liquide. Hydrogenics (HYGR) is also involved in hydrogen generation. HYGR uses the water electrolysis method which is a proven technology, but is more costly and energy intensive when compared to HyperSolar’s technology.

Conclusion

With the government supporting alternative energy, new technologies are fast gaining traction. Advancement of fuel cell vehicles is the major driver for hydrogen fuel development. USA is the leader in hydrogen fuel production, while China is also destined to become a major consumer of hydrogen fuel cells in the future. HyperSolar will benefit from the increase in demand throughout the international markets. The company is still in its startup stage and will take time to prove itself. The company has a long way to go in proving and establishing its niche hydrogen technology. It faces cash flow and funding issues, given that it is still some way away from generating positive operational cash flow. Its penny stock status also makes it quite speculative and volatile. Hypersolar is only for investors, who have large risk appetites.