In 2006, Lime Energy Co.—then called Electric City Corp.—was delisted from the American Stock Exchange when the stock price fell below a dollar. It hasn’t posted a profit in more than four years. But today every analyst who follows the energy efficiency company lists it as a “buy” or a “strong buy.” Crain’s Chicago Business has named it one of Chicago’s fastest-growing businesses two years in a row. The stock jumped more than 25 percent since Jan. 1, and some analysts predict it could double by the end of the year.
 

What are all these people seeing that can overcome such a long-term negative bottom line? Two words: the future.

Based in Elk Grove Village, Ill., Lime Energy began in 1980 selling efficient lighting systems under the name Electric City Corp. But as it acquired subsidiaries it rebranded as Lime in 2006 and shifted its focus to a brand-agnostic, energy-efficiency design and installation service. It also expanded services to include water conservation, weatherproofing, HVAC and renewable energy systems.

“The technology is changing so quickly, it actually works in our favor,” Lime CEO David Asplund said in an interview. Lime can help its customers—who have neither the time nor expertise—to keep up, he said.

“At the end of the day, somebody doesn’t care how they get 30 percent energy savings. They just care that they do,” he said.

Lime listed its shares on the Nasdaq small-cap market in 2009, but after an initial surge its stock went steadily downhill. Upon reporting a first quarter 2010 loss of $4.7 million its shares fell 50 percent to an all-time low of $2.77.

Asplund attributes its years of losses to appropriately aggressive investment in the future.

“The previous company was failing,” he said. “We came from basically nothing four years ago. We took the time to build a platform. We hired sales people, management, engineers, and opened 19 offices. Now we show operating leverage and that we can be profitable.”

The numbers, although still negative, bear this out. In last year's third quarter, Lime's loss shrank by 91 percent from the same quarter of 2009 to only $382,000. In 2010, it diversified projects to include government and utility customers with great success. Utilities are now "a major contributor to our business,” Asplund said. “Twenty-eight states have now passed laws requiring energy efficiency resource standards for utilities,” he noted.

The company also landed a facilities repair and renewal contract with the U.S. Army, helping to increase revenue by 34 percent from the same quarter in 2009. Analysts have noticed the potential in these markets.

“Both business units [government and utility customers], which were not contributing last year, saw sales increasing sequentially,” wrote Brian Kremer, senior research analyst at Roth Capital Partners LLC. Kremer also predicted a profit—Lime’s first in years—for the fourth quarter.

Lime executives estimate 30 percent top-line growth per year for the next three to five years. Paul Resnik, an analyst at Olympia Capital Markets Group, remarked in the third quarter conference call that Lime’s guidance estimates have been “uncannily on target.” Kremer agreed that meeting guidance increases confidence in the company’s stability, which helps him to disregard its unprofitable history.

Analysts recently raised 12-month price targets to a range of $7 to $8.50, with an average of $7.13. Lime’s stock has risen steadily in recent weeks, closing Tuesday at $5.05.

On Jan. 10, Lime announced it had received two contracts with the U.S. Postal Service worth $19.8 million. The one-year projects will improve energy efficiency at post offices in Texas, New Mexico, Arizona, Arkansas, Louisiana and Oklahoma.

One week later, Lime secured a $1.5 million contract with a Fortune 500 company to design and install charging stations for electric vehicles throughout the country.

The total revenues of these recent contracts exceed the company's entire revenues in the first quarter a year ago.

And it may get even better. Last week, Lime announced a contract with the District of Columbia Department of Real Estate to conduct energy audits for more than 9 million square feet of government buildings.

But Lime executives and analysts agree that the weak economy is still hampering commercial and industrial growth.  Contracts in this sector, which is Lime’s customary clientele, have lagged far behind Lime’s increase in government and utilities contracts.

Companies may be wasting money on inefficiency while they wait for the economy to improve, Asplund said, arguing that the return on energy efficiency investments can be fast and long-lasting.

“The payback on these projects can be as little as two years or less,” Kremer said. “This makes sense to customers, and they generally don’t need government incentives to be able to afford it.”

Lime Energy will announce its fourth quarter and fiscal year 2010 earnings on Mar. 21.