EnerNOC, Inc. (ENOC): What Should Investors Do?

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Apparently EnerNOC, Inc. (NASDAQ:ENOC)‘s first-quarter results didn’t do much for investors. The stock sagged after it reported its financial results several days ago. Still, trader-centric investors are likely missing a lot about this disruptive company’s story and long-term prognosis.

In demand
EnerNOC increased revenue by 34.4%, although it still reported a loss of $30.5 million, or $1.12 per share. Gross margin increased on a year-over-year basis, though, to 32%. Quarterly losses certainly aren’t optimal, but strong revenue growth and increasing gross margin both are positive indicators for the future of a company in a nascent sector.

Some investors may have decided to bail when the company simply reiterated yearly guidance, but that’s a shortsighted view. In obvious positives, EnerNOC, Inc. (NASDAQ:ENOC) expects to achieve profitability and positive free cash flow later this year. Some of its capital expenditures relate to its new headquarters, and those costs should end by the second quarter.

EnerNOC, Inc. (NASDAQ:ENOC)The demand-response company’s strengths are more compelling than short-term investors probably believe. EnerNOC, Inc. (NASDAQ:ENOC)’s customers use its solutions to manage energy usage, cutting costs and increasing efficiency; they’re even incentivized to do so because they can sell back savings to utilities and grid operators. And of course, managing and saving energy is an environmental plus as well.

But that’s not where EnerNOC’s story ends. EnerNOC’s products also take advantage of the burgeoning trend in data analytic software. In the first-quarter conference call, management mentioned an IDC report showing that that sector generates double the growth of the overall software market.

EnerNOC, Inc. (NASDAQ:ENOC) has myriad customers of all types. Some commonly known end-users of its services include AT&T Inc. (NYSE:T), Genentech, Pfizer Inc. (NYSE:PFE)Kimberly Clark Corp (NYSE:KMB)Whole Foods Market, Inc. (NASDAQ:WFM), Carnegie Mellon, and the Commonwealth of Massachusetts.

Secret strength
Another area investors may not factor into their theses is EnerNOC, Inc. (NASDAQ:ENOC)’s role in the relationship between energy and water. Some of its customers seek solutions for irrigation load control in agriculture, for example. In March, it signed a related 10-year agreement with PacifiCorp, its largest single agricultural contract yet.

In EnerNOC’s conference call, management pointed out that there are 10,000 megawatts of agricultural energy demand, and 7,000 of those are related to water, irrigation, and pumping load.

Some investors may remember the company’s distressing relationship with PJM and the shadow of damaging regulatory changes several years ago. Overhang from that situation drove the stock’s price into the single digits for quite some time.

Not only has that situation gained some certainty, but EnerNOC, Inc. (NASDAQ:ENOC)’s going one better: It has lessened its reliance on its business relationship with PJM. Whereas PJM represented about 60% of EnerNOC’s revenue several years ago, it decreased to about 40% in 2012.

Don’t forget the risks
While disruptive companies are exciting, they’re also not for the faint of heart. EnerNOC’s got a lot of things going for it, but risks remain.

Just for starters, it’s got plenty of competition in this marketplace, such as energy management service providers like Comverge, Exelon Corporation (NYSE:EXC), and Hess Corp. (NYSE:HES), as well as energy technology companies like Lucid Design Group, Building IQ, and SCIEnergy. Utilities themselves could and sometimes do use their own demand response solutions, which also lessens the business companies like EnerNOC, Inc. (NASDAQ:ENOC) can gather.

Exelon Corporation (NYSE:EXC) is an energy giant that’s been expanding its presence in the smart grid space. Hess Corp. (NYSE:HES) has its own Intelligent Demand Response product. (Granted, Hess is currently probably pretty distracted by a dissident shareholder campaign to replace directors.) Comverge may be the eeriest rival of all, given its focused competition in demand response and its stated mission to create a greener planet on top of providing energy- and cost-saving tools.

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