Should You Be Adding Energy Action (ASX:EAX) To Your Watchlist Today?

Energy Action Limited (EAX) has been making waves in the energy sector, and investors are taking notice. With a market capitalization of AU$14.62M and a stock price that has surged 111.11% over the past year, EAX is certainly on the radar of many. But should you be adding it to your watchlist? Let's dive into the data to find out.



Understanding Energy Action Limited's Business Model

Energy Action Limited operates as an independent energy partner, providing a range of services including electricity and gas procurement, energy management, and retail billing services to business customers in Australia. The company's business model is centered around helping businesses optimize their energy usage and costs through innovative solutions and strategic advice. This positions Energy Action Limited as a key player in the energy procurement and management market, offering tailored energy management strategies that align with the evolving needs of its clients.

The company's revenue streams are diverse and include energy procurement services, contract management services, and advisory services. Energy procurement services involve assisting clients in securing competitive energy contracts, while contract management services focus on overseeing and optimizing clients' energy contracts to ensure cost efficiency. Advisory services provide expert guidance on energy strategy, sustainability, and efficiency improvements, further enhancing the company's value proposition.

Key partnerships with energy providers and industry stakeholders enhance EAX's ability to deliver value-added services, thereby contributing to its earnings growth. For instance, the company's sourcing and contracting for solar solutions demonstrate its commitment to sustainability and innovation, which can attract environmentally conscious clients.

Financial Performance: The Good and the Bad

Energy Action Limited's financial performance presents a mixed bag. On the positive side, the company has shown a significant EPS growth of 60.11% over the past year, which is a strong indicator of the company's financial health and profitability. This growth is higher than some of its peers, such as AUNEU, which has a negative EPS growth of -10.13%.

However, the company's revenue growth is negative at -7.06%, which is a concern. The company's total revenue has decreased from AU$18.90M in June 2020 to AU$10.78M in June 2024, indicating a downward trend in its financial performance. Additionally, the company's total debt has fluctuated, reaching AU$7.37M in June 2023, which could impact its financial stability.

Market Position and Valuation

Energy Action Limited's market capitalization of AU$14.62M is relatively small compared to some of its peers. However, this also means that the company has room for growth and could be undervalued. The company's P/E ratio is 13.16, which is lower than the sector average of 12.39. This suggests that EAX could be undervalued compared to its peers.

Potential Risks and Opportunities

While Energy Action Limited presents several attractive financial indicators, there are also potential risks associated with its business model. The company faces financial challenges, including declining revenues and high leverage, which pose significant risks to its operations. Additionally, the company's lack of independent directors on its board could be a concern for some investors.

However, there are also opportunities for growth. The company's focus on sustainability and efficiency improvements can attract clients looking to reduce their carbon footprint and optimize energy costs. Furthermore, the company's ability to adapt to changing market conditions and provide tailored solutions can help it maintain a competitive edge in the energy procurement and management market.

Conclusion

Energy Action Limited presents a compelling case for investors looking to add an energy stock to their watchlist. The company's strong EPS growth, positive cash flow, and lower debt levels compared to some of its peers are all positive signs. However, investors should also consider the company's declining revenue growth and high leverage, as well as its lack of independent directors on its board.

Ultimately, whether or not to add Energy Action Limited to your watchlist depends on your investment goals and risk tolerance. If you're looking for a company with strong growth potential and a focus on sustainability, EAX could be a good fit. However, if you're more risk-averse, you may want to consider other options in the energy sector.