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Renewable energy is sexy right now. As sexy as energy can be. However, when it comes to investing in renewables, it’s tricky business.

Case in point.

U.S. Geothermal (NYSE: HTM) is a small-cap stock, to say the least, trading at less than a $1 per share and $60 million market cap. Trading at a 55 cent handle it checks a number of boxes on our Six Small-cap Laws.

Often overlooked and orphaned because there isn’t enough money in covering and reporting on small-caps, US Geothermal is still an exciting stock, yet misunderstand, as so many renewable palys are. US Geothermal operates three geothermal plants in the US. Part of what adds to the obscurity of US Geothermal, if the fact that it trades at a $60 million market cap, is that it’s in the geothermal business.

Now, geothermal is a form of energy that demands some of the highest pay rates from utilities.

You’ve got long-term contracts and inherent value in the plants that underpin the valuation.

Growth is the big story for US Geothermal, however, with the potential to increase its geothermal output. Its current output of 50 megawatts is a fraction of what US Geothermal could manage in just a few years and it has the management bandwidth to get it done – with Dennis Giles as CEO. Giles managed an 800-megawatt portfolio for Calpine in the past.

It’s already hired an investment bank to advise on strategic alternatives, with a go-private deal a possibility.

One small hedge fund, Artko Capital, has 10% of its fund invested in US Geothermal. Naturally bullish, Artko is encouraged by the strategic review, with the private equity interest offering some “downside protection.”

Activist Investor Now Involved

Now, Artko Capital has some company.

JCP Investment Management, the small activist hedge fund, revealed a 5% stake in US Geothermal earlier this month. They are invested at an average cost of $0.58 a share.

Industrials, utilities and the likes are JCP’s sweet spot. JCP took on Gas Natural a couple years ago, as well as Smith-Midland in 2012, where the fund saw annualized returns of 100% and 200% on over the campaign holding period.

JCP believes that US Geothermal shares are cheap and may engage with management about capitalization, ownership structure, board structure or operations.

The End Game

There are risks here, with US Geothermal needing cash to fund the various projects and cash isn’t always readily available. This could mean diluting shareholders with equity capital raises. US Geothermal operates in a niche business, which is good and bad. The bad actually working for them in this market. The company needs a lot of cash to support its projects, making tapping the equity and debt markets increasingly challenging. Rather, a private equity buyer can inject cash and operate the tremendous business model outside the guise of the public markets.

This is part of our new small-cap coverage with ValueWalk – We’ll be using our own insights and network of underrated small-cap hedge funds to flip the script on finding investable small-caps. This starts with a free small-cap email newsletter – non-spammy and non-penny stock to offer some ideas you won’t find elsewhere.

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