Capstone Turbine (NASDAQ:CPST) will release its quarterly report on Monday, and investors have been increasingly optimistic about the microturbine maker's immediate prospects. Yet, even though the company's stock rose recently to its best levels in almost three years, Capstone still has to demonstrate that its niche offerings give it a viable market that is too insignificant for larger rivals General Electric (NYSE:GE) and Caterpillar (NYSE:CAT) to go after.

Long-time Capstone Turbine shareholders have suffered more than their fair share of disappointments, as the stock has never come close to recovering from its 99% plunge between early 2000 and 2002. Lately, though, Capstone has managed to attract substantial orders that have led to dramatic revenue gains, with sales having quadrupled in the past five years. The question for Capstone, though, is whether it can start seeing enough of those revenues fall to the bottom line for the company to start posting profits. Let's take an early look at what's been happening with Capstone Turbine during the past quarter, and what we're likely to see in its report.

Source: Capstone Turbine.

Stats on Capstone Turbine

Analyst EPS Estimate


Year-Ago EPS


Revenue Estimate

$40.33 million

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Can Capstone earnings make it to breakeven this quarter?
In recent months, analysts have held their views on Capstone earnings steady, with expectations of a $0.05-per-share loss for the full fiscal 2014 and a $0.01-per-share profit in 2015. The stock has done well, jumping 24% since early November.

Capstone's most recent quarterly report showed just how much progress the microturbine maker has made recently. Revenue soared 17% from the year-ago quarter and by an even more substantial 45% sequentially compared to the previous quarter. Capstone's losses narrowed to just $0.01 per share. With a 6% jump in backlogs to almost $150 million, Capstone is in much better shape from a sales standpoint than at any other point in its history.

The biggest appeal of Capstone's systems is that they can provide power even in remote locations. For instance, in December, the company said it had sold several microturbines to customers on offshore oil and gas platforms, demonstrating the utility of having readily available electricity sources far from any established grid-based power. Those orders only add to Capstone's penetration of the energy industry, with many companies using Capstone products to get power to remote shale plays off the grid. Recent international orders from Russia and elsewhere also represent a small part of the global potential Capstone has.

Yet, Capstone has a couple of threats. One is that if microturbine solutions become popular enough, General Electric and Caterpillar might well start modifying their larger-scale high-efficiency power-generation offerings toward the smaller-customer market. The other could come from the solar industry. With the rise in residential and small-commercial solar installations thanks to the success of SolarCity (NASDAQ:SCTY) and SunPower (NASDAQ:SPWR) in providing easy financing, demand for Capstone's microturbines could come under pressure as solar costs continue to decline.

In the Capstone earnings report, watch to see whether the company is able to keep its gross margins moving higher. With enough sales, Capstone could well reach profitability in the next year, marking an important milestone as it tries to overcome more than a decade of disappointment for loyal long-term shareholders.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends SolarCity. The Motley Fool owns shares of General Electric Company and SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.