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Why This Small Cap Is a Great Opportunity for Investors

Source: Ameresco investor presentation

Efficiency and power know-how

In presenting the ability to do more with less, Ameresco attempts to remove financing as a barrier to recognizing energy improvements. Through an Energy Savings Performance Contract, or ESPC, Ameresco offers to cover all costs associated with identifying and implementing the energy solutions. The customer pays Ameresco with a portion of the energy savings. At the end of the contract's term, the customer retains the improvements and continues to receive savings.

The company is also qualified to help customers develop renewable energy solutions -- everything from solar power to geothermal to biomass to wind power. Emphasizing service offerings, Ameresco has worked over the past five years to diversify its revenue streams. For example, the company has more than $700 million in operations and maintenance backlog related to U.S. Federal projects that extend out up to 18 years.

Getting that backlog rolling

The market hasn't been kind to Ameresco for some time now -- shares are down more than 50% over the past five years. Though the company had steadily grown revenue and earnings from 2005 through 2011, the following three years were a challenge.

The company's backlog, or "expected future revenue under signed customer contracts," differs from its awarded projects, which do not have signed contracts. A risk Ameresco concedes is that it may "not recognize all revenue from our backlog or receive all payments anticipated under awarded projects and customer contracts." Following 2011, this risk became a reality. Although the company's awarded projects grew from $483 million in 2010 to $993 million in 2013, the company's backlog contracted from $651 million to $362 million, respectively.

It seems as though the company has turned the corner, though. Despite its awarded projects declining 14% from 2013 to 2014, the backlog grew 6.6% over the same time period -- the first instance of sequential, annual backlog growth since the company went public in 2010. More recently, for the second quarter of 2015, Ameresco's 12-month, fully contracted backlog has grown 19% year over year.

A guide to the guidance

Over the summer, Ameresco provided guidance on FY 2015. If it is accurate, the company will have proven that it is successfully working its way down the road to recovery.

Metric 2013 2014 2015 Estimate
Revenue $574 $593 $610-$640
Operating income $6.6 $13.2 $17.7-$22.7
Adjusted EBITDA $30 $38 $43-$48
Net income per diluted share $0.05 $0.22 $0.16-$0.24

Data source: Ameresco 10-K

Should revenue for 2015 fall in the middle of the estimated range, it would mark a 5.5% improvement over 2014. And, if adjusted EBITDA falls in the middle of the guidance, it will represent a much more impressive 19.5% gain over 2014, suggesting that the company is not just bringing efficiency to its customers' endeavors, but that it is bringing greater efficiency to its own operations.

The takeaway

With volatile oil prices dominating the headlines in the energy sector, it is understandable that investors are missing other newsworthy items -- namely, the concerted efforts of cities and states to distance themselves from coal and fossil fuels. Obtaining a greater share of energy from renewable sources is one way to accomplish this, but achieving greater energy efficiency in existant facilities is yet another. Offering customers not only energy efficiency services, but a variety of renewable energy solutions, Ameresco is well-poised to prosper from the waning interest in traditional energy sources. Should the company meet its guidance, it would appear that it will have turned a corner, bearing worthy consideration for investment.

The next billion-dollar iSecret

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The article Why This Small Cap Is a Great Opportunity for Investors originally appeared on Fool.com.

Scott Levine has no position in any stocks mentioned. The Motley Fool recommends Ameresco. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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