Every investor can appreciate a stock that consistently beats the Street without getting ahead of its fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with improving financial metrics that support strong price growth. Let's take a look at what Capstone Turbine's
What the numbers tell you
The graphs you're about to see tell Capstone's story, and we'll be grading the quality of that story in several ways.
Growth is important on both top and bottom lines, and an improving profit margin is a great sign that a company's become more efficient over time. Since profits may not always be reported at a steady rate, we'll also look at how much Capstone's free cash flow has grown in comparison to its net income.
A company that generates more earnings per share over time, regardless of the number of shares outstanding, is heading in the right direction. If Capstone's share price has kept pace with its earnings growth, that's another good sign that its stock can move higher.
Is Capstone managing its resources well? A company's return on equity should be improving, and its debt to equity ratio declining, if it's to earn our approval.
By the numbers
Now, let's take a look at Capstone's key statistics:
CPST Total Return Price data by YCharts
Passing Criteria |
3-Year* Change |
Grade |
---|---|---|
Revenue Growth > 30% | 118.1% | Pass |
Improving Profit Margin | 75.2% | Pass |
Free Cash Flow Growth > Net Income Growth | 60.5% vs. 60.2% | Pass |
Improving Earnings per Share | 73.1% | Pass |
Stock Growth (+ 15%) < EPS Growth | 20.5% vs. 73.1% | Pass |
Source: YCharts. * Period begins at end of Q2 2009.
CPST Return on Equity data by YCharts
Passing Criteria |
3-Year* Change |
Grade |
---|---|---|
Improving Return on Equity | 47.5% | Pass |
Declining Debt to Equity | (27.8%) | Pass |
Source: YCharts. * Period begins at end of Q2 2009.
How we got here and where we're going
Despite a history of unprofitability and a lack of positive free cash flow, Capstone's key metrics are all moving in the right direction, indicating the potential for future sustainable gains. However, an unprofitable company can't survive forever, so Capstone has to find a way to get itself into the black soon.
Capstone opened the year with a weak earnings report, and hasn't impressed the Street with its progress in subsequent quarters -- its latest report was a double whiff on top and bottom lines. The company's focus on sales to unconventional oil and gas drillers hasn't boosted it yet, as increases in operational oil drilling rigs have been offset by a long-term natural gas drilling decline.
Capstone's focus on Eagle Ford shale drillers may not be the best course of action, as major Chesapeake Energy
However, those companies might see Capstone's technology as a valuable complement and decide to acquire the company with the $300 million market cap. General Electric
Putting the pieces together
Capstone has some of the qualities that make up a great stock, but no stock is truly perfect. These numbers are likely to change over time, so it's important to keep track of Capstone's progress. The Fool is here to help. When you add Capstone to your free personalized Watchlist, you'll get updates whenever we uncover any news you'll need.
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