Zoltek is Alternative Energy Wind Power Investing

Zoltek Companies, Inc. (NASDAQ:ZOLT) is a gem in the Wind alternative energy industry.  But it's high 26% short interest and investigation by SEC for accounting errors has dropped this stock 35% since it's high last August.  So if Wind is another answer to fossil fuels and high oil prices, should you be thinking about ZOLT?

First, the Department of Energy said last week forecast that the industry might deliver 20% of the nation’s electricity by 2030. It generates less than 1% now. Then famed oilman T. Boone Pickens ordered 667 turbines from General Electric (NYSE:GE) to outfit the wind empire he envisions on the Texas Panhandle (GE is now part of the Shoot Me Now Index). Pickens may shell out $10 billion or more before all is said and done. Then last weekend, Spain-based Iberdrola Renewables said it planned to invest $8 billion in U.S. wind operations in the next two years.

Zoltek Cos. sells more super-sturdy carbon fiber for turbine blades than anyone else. With clients like Vestas and Gamesa, it's enviably entrenched as a supplier. Yet it hasn't made the most of its opportunity, and that's largely the fallout of internal failures. This month, Zoltek’s chief financial officer made his exit amid accounting questions that investors find worrisome. The firm also has run into roadblocks trying to get its U.S. plants up to speed, holding back output while demand swells.

Zoltek also makes carbon fibers used in wind turbines, car parts, and sporting goods. Zoltek is in demand from wind turbine players, such as Denmark-based Vestas and Spain-based Gamesa, because the wind market is a big consumer of carbon fiber.

Soaring oil prices fuel the search for alternative energy sources--good news for carbon-fiber maker Zoltek. 

Some investors were buoyed by the company's recent quarterly results. Others weren't. Revenue rose 35% year over year, but that fell short of forecasts. Zoltek has tried to bounce back in April and last week but fate has kept the stock under $30.

Zoltek is definately a unique stock in two ways:

1) it is a dominant player in fast-growing sector, providing carbon fiber for the wind energy sector. The company is in quite the same position as MEMC Electronic (NYSE:WFR) is to the solar sector.

2) Unlike MEMC Zoltek is the only US-quoted pure-play of the wind energy sector.

Given all the gaga over the solar energy, one might wonder why wind energy has gone relatively unnoticed. Lack of high-profile quoted wind energy companies has probably been the reason, but that is rather unjustified. After all, it has proven to be profitable source of alternative energy.

This all sounds great so what's not to like?

ZOLT shares have a huge short bet against them.  Thus the massive swings in the stock price during the last 6 months:

Then there's the SEC thing, which is no small matter.  The Securities and Exchange Commission which told the company May 13 that it is conducting a non-public, fact-finding investigation into the matter, according to a Zoltek regulatory filing Thursday with the SEC.

The SEC has requested that Zoltek retain certain records and produce information and documents related to the company's two unauthorized or unreported payments totaling $250,000 that were made public May 5. Zoltek will cooperate fully with the SEC's investigation, according to Thursday's filing.

Zoltek said it expects to submit a timely request for a hearing before a Nasdaq Listing Qualifications Panel. That request will stay delisting action pending the hearing and a determination by the panel, but Zoltek cannot provide any assurances that the panel will grant its request for continued listing.

Victoriacap LLC is a local company that a Zoltek subsidiary paid $75,000 in January -- one of two unauthorized or unreported payments totaling $250,000 that triggered former chief financial officer Kevin Schott's resignation. Zsolt Rumy, chief executive of Zoltek, said in a conference call May 13 that he had never heard of Victoriacap until the accounting errors at Zoltek were discovered.

Rumy said Zoltek had done business in the past with Arch Capital LLC, the other company to receive an unauthorized and unreported payment. That company received $175,000 last September.

Schott resigned May 2 to avoid dismissal by Zoltek's board, according to an agreement that Zoltek filed with the SEC in which Schott agreed to pay Zoltek $250,000 from his own pocket. Under the agreement, Zoltek agreed to waive any claims, lawsuits or actions it may have had against Schott in relation to the payments made to Victoriacap and Arch Capital.

In a statement May 5, Zoltek announced that its board's audit committee had launched an investigation to determine whether any other unauthorized activities had occurred at the company. Seven days later, the company announced that it had hired Andrew Whipple, former chief financial officer at Shawnee, Kan.-based E3 Biofuels, as vice president and chief accounting officer.

What to make of it all?

Masters, ZOLT is a great long-term story, they are the future and their stock will grow over the years.  For now you have to use caution because of the high short interest and SEC investigation.  Our recommendation is to watch the stock for a week or two, start with a small position but do not go all in.  Zoltek has a great story but it's a story that requires patience when it comes to investing.

SOURCE: Forbes.com, http://notablecalls.blogspot.com/, BizJournals.com