The Time Has Come For This Smart Energy Company

When most people think of technology in energy, they think mainly of companies in the alternative energy space. There have been some amazing advances in solar and wind power, and particularly in producing usable vehicles powered by batteries rather than gasoline, over the last decade or so. Those advances have transformed “green energy” from a political pipe dream to an emerging reality in many developed countries, but if it is to really succeed, there is one other area where progress must be made…metering and demand reduction.

Demand reduction obviously reduces emissions, but reducing the amount of electricity required on a day-to-day basis also makes the switch to the less efficient alternative energy sources more viable. Governments, who aren’t typically known for their flexibility, are slowly coming to realize that, and are increasingly supporting and subsidizing metering and demand reduction efforts as a result. Local and national authorities are paying more attention to the issue, as are the utilities that supply the power. It may seem strange for them to push their customers to use less of their product, but many are facing capacity issues that are stretching their networks. In that situation, discouraging power consumption does make sense, even if it is just to buy some time, and getting more efficient metering and billing and greater customer satisfaction in return sweetens the deal even more.

Metering and demand management are nothing new, of course. They have been around in some form or other since electric power became a thing. However, with increasing energy costs, both in financial terms and in terms of the externalities that many people now consider, the technology has become more important. That has drawn research dollars and made the products offered in the space both more practical and more appealing.

However, even though this is an area of rapidly evolving technology, it is not one where new companies have an edge. Existing relationships with utilities and authorities and a proven track record are important, so if you are looking for a way to play the trend as an investor, it is best to look for established companies where greater adoption and utilization is a growth opportunity rather than a necessity. Itron (ITRI) is a case in point. They have been around for decades and have shown that they can operate profitably in the past.

The opportunity here, though, is about the future, not the past. The political and financial situations are combining to put Itron on a growth trajectory the like of which they haven’t seen before.

In some ways, that has been reflected in the performance of ITRI over the last year. The stock hit a low just below $40 after releasing earnings a year ago, then began a strong, sustained recovery that saw it hit $79.99 last month. Then, following a cautious outlook that accompanied a top and bottom line beat in their Q2 earnings, the stock started to pull back and now, at below $65, represents value.

The numbers back up that perception, too. ITRI at current levels is trading at around 1.5X sales, with a PEG ratio, a measure of price relative to past earnings and future growth where a value below 1.0 represents value, of 0.99.

More than anything, though, Itron is just a company whose time has come. Even in America where, in the past, energy has been cheap and plentiful and externalities only concerned economists and the most ardent tree huggers, demand management and metering are gaining ground. That opens up and expands a massive, potentially very lucrative market for Itron, and over the next few years, their stock can be expected to reflect that.