TPS Trade Alert – February 13, 2013
February 13, 2013
Recommendation:
Buy Capstone Turbine (NASDAQ: CPST) up to $1.17 per share.
Trade Rationale:
These days, companies are focused on two areas of energy management. One is energy efficiency – how can a business reduce energy costs without reducing energy usage?
The other, more recent area is related to green energy. How can a company utilize more green energy? Government mandates are forcing the issue, and they’ll become even more stringent over time.
The problem is, these two ideas can often contradict each other. Sometimes, green energy is more expensive, or not as efficient.
Here’s the thing…
During our research, we came across a company that develops products which address both key issues. This company can help other businesses tackle the challenges of being more energy efficient while also becoming more environmentally friendly.
Does that sound too good to be true?
Not if you ask Capstone Turbine (NASDAQ: CPST).
CPST develops microturbine technology solutions for use in stationary distributed power generation applications. The company primarily offers microturbine units and components for applications which generate both heat and power.
Capstone’s microturbine units are used in several market segments. Natural resources, energy efficiency, renewable energy, critical power supply, and transportation products are key areas where the products are used.
Basically, the units generate power (and heating or cooling) continuously or on demand. They can be used by office buildings to increase energy efficiency, data centers as backup power, natural gas producers as a primary energy source, and even hybrid electric vehicles as a charging station.
Here’s why CPST’s products are impressive…
The microturbines can run on various types of fuels including natural gas, biogas, diesel, propane, kerosene, and more. This flexibility is one of the reasons the systems can be used by several different market segments.
What’s more, Capstone’s specializes in low-emissions products. The company is committed to reducing emissions of pollutants and greenhouse gases. That makes the products attractive to renewable energy and other green energy companies.
Finally, CPST has shipped systems to over 6,500 customers worldwide. Yet, that just scratches the surface of the potential market. Management believes the company can realistically capture $1.5 billion of the $14.6 billion total market opportunity.
Talk about growth opportunity…
And judging by the most recent quarter, CPST is already experiencing solid growth.
Last quarter, the company pulled in record revenues of $33.3 million. That’s a 21% year over year gain. The gains were driven primarily by orders in the oil and gas sector.
The company isn’t profitable yet, but it’s quickly closing the gap. Net loss is getting smaller each quarter. Meanwhile, gross margin is improving substantially. In fact, it doubled year over year.
Moreover, the company’s balance sheet looks rock solid.
CPST’s cash balance is $45.2 million, compared to just $12.1 million in debt. Plus, current assets are 1.9x current liabilities. Clearly, management is running a healthy company. Plus, it has the ability to expand through acquisition if the opportunity arises.
Despite the impressive growth, CPST shares continue to trade at a discount.
At a current price of $0.97 per share, the stock is trading 33% below its 52-week high. And, it’s trading significantly below the 2008 high of over $4.00 per share.
Given the company’s strong product, market outlook, and proven growth, we see no reason the stock won’t return to all-time highs. In other words, now’s the time to grab shares of CPST.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
| Company: | Capstone Turbine |
| Ticker: | CPST |
| Recent Price: | $0.97 |
| Market Cap: | $295.2 million |
| Avg. Daily Volume: | 1,778,730 shares |
Chart:
Category: TPS Trade Alert
