Tesla Motors (Nasdaq: TSLA)
has been one of the best ways to cash in on the growing demand
for electric cars. After climbing steadily for three years,
shares have shot higher this year, surging 390% in just the past
But despite that very bullish move, shareholders got a big
scare last week when a video of its Model S EV catching fire went
viral across the Internet. That sent Tesla plunging 10%, carving
about $3 billion off its market cap.
While there's no question Tesla is a great company, it's a
good example of the risks associated with investing in original
equipment manufacturers (OEMs): Consumers are fickle, and bad
public relations can be a killer. And that can spell big trouble
There's a better way to cash in on growth in the electric car
Unlike OEMs, there is little model-specific risk. And unlike
Tesla, trading with a ridiculous valuation, shares of this global
leader are trading at a relative discount after a short-term
pullback. Take a look at the dip below.
The chart may look a bit gloomy right now, but the pullback is
creating a great opportunity to buy a global leader while shares
are on sale.
Polypore International (
is a $1.9 billion global leader in the lead-acid and lithium-ion
battery markets. The company's largest segment is the traditional
lead-acid battery market, where it derives about 47% of its
annual revenue. That division continues to perform well, with
recent second-quarter results showing 9% revenue growth from last
year to $80 million.
More than 6,000 lithium-ion batteries like this
one are found inside the car battery used by the Tesla
But the real driver of growth for Polypore is its lithium-ion
battery segment, a major supplier of lithium-ion batteries for
electric cars. Polypore is already one of three market leaders in
the space with 20% market share. Its roster of clients comprises
the industry's biggest and most powerful brands, including
General Motors (
The division struggled through a challenging 2012 when
electric-drive vehicle (EDV) sales came in below expectations,
leading to bloated customer inventories and heavy margin
pressure. That's the reason for the big dip in the chart above.
Many investors sitting on big gains from 2010 and 2011 chose to
take some profit with bad news in the air.
But now the reversal is in play, on both the chart and the
income statement. Polypore's recent second-quarter results saw a
huge rebound in lithium-ion battery sales, jumping more than 150%
from last year to $42 million as electric car sales once again
surged higher. The company also reported impressive margin
strength, reporting an operating margin of 75%. That big rebound
has gone a long way to support sentiment, earnings and
But that impressive turnaround is just the beginning of a
long-term trend. Because Polypore is in position to cash in on
booming electric car sales. August was a record month for
domestic electric-car sales, jumping an eye-popping 50% from the
previous month, to 11,363. And that trend is showing no sign of
slowing, with year-to-date electric-car sales of 60,000, already
well past last year's total of 53,000. Polypore will continue to
benefit from supplying industry-leading electric-car makers with
lithium-ion battery technology.
The good news has analysts looking for big returns from
Polypore, calling for 38% earnings growth in 2014 and average
annual earnings growth of 16% in the next five years.
Risks to Consider:
Polypore's lithium-ion division will be driven by sales
volumes in electric cars. Weakness in 2012 before a big rebound
in 2013 underscores how vulnerable the high-growth electric-care
industry is to short-term fluctuations in demand.
Action to Take -->
Polypore's most important division is back on the mend after a
tough 2012. That has shares stabilizing after a sharp 43% drop in
the past two years. Although that contraction did sweeten the
valuation, Polypore isn't exactly a value stock. Shares currently
trade with a forward P/E (price-to-earnings) ratio of 35, which
is a premium to 10-year average of 23 and peer average of 18. But
as a growth stock with mounting momentum and big long-term
potential, Polypore is still a buy at current levels and below