Silver Spring Networks (SSNI) Plunges: Is This Smart Metering Stock a Smart Investment? (ITRI & ELON)

Although small cap smart metering stock Silver Spring Networks Inc (NYSE: SSNI) recently soared on earnings, it also plunged yesterday after loosing out on important contract – meaning it might be time to take a closer look at it along with other smart metering stocks like Itron, Inc (NASDAQ: ITRI) or Echelon Corporation (NASDAQ: ELON) to see if they are smart investments.

What is Silver Spring Networks?

Small cap Silver Spring Networks calls itself a leader in networking technologies that modernize today's power grid. Specifically, Silver Spring Networks' IPv6 networking platform has 17 million devices delivered connecting utilities such as Baltimore Gas & Electric, CitiPower & Powercor, Commonwealth Edison, CPS Energy, Florida Power & Light, Jemena Electricity Networks Limited, Pacific Gas & Electric, Pepco Holdings, Progress Energy and Singapore Power to homes and business throughout the world. These solutions enable utilities to gain operational efficiencies and improve grid reliability while empowering consumers to monitor and manage energy consumption.

For reference, Itron builds solutions that help nearly 8,000 utilities in more than 100 countries measure, manage and analyze energy and water while Echelon Corporation develops, markets and supports an open standard, multi-application energy control networking platform that is embedded in more than 100 million devices, 35 million homes and 300,000 buildings.

What You Need to Know About Silver Spring Networks

Yesterday, Silver Spring Networks apparently plunged after the UK government announced that Capita, CGI, Arqiva and Telefonica S.A. (NYSE: TEF) are the "preferred bidders" for contracts to support the UK's smart meter roll-out – no small project as the entire scheme is expected to worth or cost around £11.5 billion. Silver Spring Networks had partnered with Vodafone Group Plc (NASDAQ: VOD) on a bid to both create and run the telecom infrastructure behind the smart meters, but they will now go away empty handed.   

The opportunity to win a portion of the contract was viewed as being key to the company's future with Brent Bracelin, an analyst at Pacific Crest Securities, recently writing:

"We see this as a binary event. If Silver Spring wins one of the three 10 million smart meter lots, the stock could go up meaningfully on a contract that could be worth more than $1 billion of smart grid infrastructure. If not, it would obviously be a setback and limit visibility into 2015 and beyond."

Another analyst also noted that the IPO lockup period for Silver Spring Networks expires on September 8th and that could lead to some volatility in the stock.

However and back in early August, Silver Spring Networks was soaring after beating Wall Street expectations on both the top and bottom line. Specifically, Silver Spring Networks reported a 17% year-over-year revenue increase to $86.5 million while GAAP net income came in at $9.5 million verses a GAAP net loss of $23.4 million a year ago. The company ended the quarter with $125 million in cash.

Otherwise, it should be noted that Silver Spring Networks' March IPO was priced at $17 a share and the stock opened at $22 for a 29% jump. The company sold 4.75 million shares, a million more than was originally allocated for the IPO, to raise $81 million.

Stock Performance: Silver Spring Networks vs. Itron and Echelon Corporation

On Wednesday, small cap Silver Spring Networks sank 29.79% to $22.25 (SSNI has a 52 week trading range of $15.35 to $33.82 a share) for a market cap of $1.04 billion plus the stock is up about 1.1% since the middle of March. Itron is down 8% since the start of the year, down 8.3% over the past year and down 60% over the past five years while Echelon Corporation is down 9.8% since the start of the year, down 31.4% over the past year and down 80.4% over the past five years:

Finally, here is a quick look at the latest technical charts for Silver Spring Networks, Itron and Echelon Corporation:

The Bottom Line. Given that small cap Silver Spring Networks is being shut out of a massive UK smart metering contract and the IPO lockup period is about to expire, investors will probably want to stay away for the near term while the performance of both Itron and Echelon Corporation has not exactly been awe inspiring either.