Concerns about American Superconductor's (Nasdaq: AMSC ) reliance on a single large customer turned out to be a little overblown in the fiscal third quarter as the company shocked investors with great results.
Sinovel continued to buy product, and as 2011 moves along more wind customers will start ramping up production, reducing reliance on the third-largest wind turbine manufacturer.
Revenue jumped 42% to $114.2 million, and both gross margin and operating margin increased to 40.7% and 18.8%, respectively. In the future, management is expecting operating margins to be above 20% on an ongoing basis.
As wind installations pick back up in China and worldwide, the company should ride the wave higher. The beauty of American Superconductor's business model is that it operates under long-term contracts with multiple manufacturers. It doesn't care which firm you choose for your wind project, as long as it has American Superconductor products in it. But as the company grows, wind manufacturers will play a decreasing role in future growth.
Growth beyond wind
Going forward, American Superconductor expects D-VAR and SolarTie to become a larger percent of revenue as wind and solar projects adopt these products. Inverter companies like American Superconductor, Satcon (Nasdaq: SATC ) and Power-One (Nasdaq: PWER ) are seeing high growth in this area. As innovation makes inverters more customized for renewable energy, sales should be driven even higher.
There are also superconductors -- which, considering the company's name, ironically haven't contributed very much to sales thus far. That should change as Amperium wire sales pick up and the Tres Amigas project to connect three U.S. electrical grids moves forward.
Big dreams becoming bigger
On the conference call, management couldn't push its goal of $1 billion of sales and 20%-plus operating margins in 2015 hard enough. The company may even be able to cut a year off that plan if superconductors and grid products are able to drive growth. To help investors sleep better at night, management expects Sinovel to be closer to 50% of sales by then, a far cry from 80% in the past.
I don't see any reason to be anything but bullish on American Superconductor's future. Sales are growing, margins are up, and new innovative products are just starting to hit the market. The stock may be lagging, but with performance like this it won't be for long.