Shares of Hudson Technologies (HDSN) have taken a hit following the release of their first-quarter results, which showed that depressed prices for hydrofluorocarbons (HFCs) may continue to impact the company’s performance for the coming months. The stock, which was trading near $15 in February, fell to under $10 before the earnings report and is currently hovering around $9. Despite higher carbon-credit sales and increased service projects helping Q1 revenue surpass expectations, lower selling prices and a decrease in revenue from a contract with the Defense Logistics Agency resulted in earnings of 20 cents per share, meeting Wall Street’s projections.
CEO Brian Coleman revealed that massive imports of virgin HFCs in 2021 and 2022 have created a stockpile ahead of production cuts that took effect this year, which is expected to keep a lid on pricing for several months. If HFC prices remain depressed for the remainder of the 2024 selling season, HDSN expects full-year revenue to be lower than analysts’ projections, with gross margin falling below the company’s goal of 35%. However, Coleman believes that prices are likely to firm up as the cooling season progresses and with new regulations mandating a reduction in virgin HFC production and the use of reclaimed refrigerants, driving growth in the industry.
Hudson Technologies (HDSN) is recommended as a stock to watch in the Forbes Investor newsletter, which focuses on undervalued gems with significant upside potential like HDSN. Despite the current challenges faced by the company, the regulatory environment and increasing demand for reclaimed refrigerants are expected to drive growth in the industry. With strong free cash flow production in 2023 leaving the company debt-free and with cash on hand, HDSN is well-positioned to take advantage of acquisition opportunities that may arise as competitors struggle to comply with upcoming regulations.
The company remains optimistic about the future, expecting increased demand as they enter the busiest period of their selling season and anticipate improved margins as prices for reclaimed refrigerants rise. They see potential in replenishing their inventory with lower-cost refrigerants that could be sold at higher prices in the future, leading to growth in earnings and cash flows. Julius Juenemann, CFA, an equity analyst and associate editor of Forbes Special Situation Survey and Forbes Investor, highlights these factors as reasons for remaining positive about HDSN’s prospects, despite the recent drop in share price post-earnings report.
Juenemann believes that the current weakness in the company’s shares is temporary, and that Hudson Technologies has the financial strength to capitalize on opportunities that may arise in the industry. With the potential for consolidation in the refrigerant recycling sector and the company’s strong cash flow position, they are well-equipped to navigate the challenges and take advantage of growth opportunities. Investors looking for potential opportunities for growth and significant upside in the market may find HDSN an attractive option, as the company positions itself to benefit from evolving regulations and increasing demand for reclaimed refrigerants.
