Capstone Turbine Corporation Stock Soared 10% Last Week, but Will the Rally Continue?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades – just in case the reasoning behind the call makes sense.

What: Shares of microturbine maker Capstone Turbine (NASDAQ: CPST  ) were on a tear last week, gaining as much as 10% after FBR Capital upgraded its rating on the stock to outperform, planting a price target of $2.50 a share. That represents a solid 41% upside from the stock's Friday's close.

So what: Analyst Aditya Satghare believes that "natural gas as a fuel is at an inflection point and that Capstone, with its reliable and versatile microturbine product, is well positioned in this market." Capstone's microturbines can operate on a variety of fuel forms, including natural gas, diesel, flare gas, kerosene, propane, and even biogas.

So Satghare is clearly bullish on the potential of natural gas as an alternative fuel (which is also why he upgraded shares of Westport Innovations, the innovator in natural gas engine technology, last week), and sees promise in Capstone's versatile microturbines. Satghare expects "a sizable increase in order sizes, from both new and repeat customers, over the next 12-24 months" for Capstone, which should help the company "transition into a profitable and cash flow-positive business model" over the period. That certainly sounds optimistic for a company that sold its first microturbine in 1998, but has yet to turn a profit. 

Now what: Given how a greater number of stringent emission standards are being rolled out across the globe, Capstone appears to be in the right business at the right time. Capstone's burgeoning order book and growing backlog evidences the rising demand for its turbines. Management also seems to be doing a neat job at controlling costs -- Capstone's last-quarter gross margin was at record high.

So if Capstone's revenue and margin continue to grow at good pace, chances of it turning profitable over the next year or two, as Satghare projects, can't be ruled out. But that's just an estimate, and as a prudent investor, I'd rather wait for the first signs of profitability and positive cash flows from the company before I get my hands on its stock.

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Read/Post Comments (5) | Recommend This Article (3)

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  • Report this Comment On February 25, 2014, at 9:43 AM, Jamesband wrote:

    I’m a fan of the CPST technology, after all why FRACK if you are not going to utilize the abundance/windfall of the new energy source. The Capstone Turbines/Micro Turbines are the top of the line technology in this space. Their patents for their turbine technology is lock in the industry for all types of platforms, stationary and mobile.

  • Report this Comment On February 25, 2014, at 3:51 PM, Redwood wrote:


    This has been another edition of simple answers to simple questions.

  • Report this Comment On February 25, 2014, at 7:26 PM, tomdotstar wrote:

    I like CPST, and still hold some shares. But here's why I've sold most of my position.

    A careful reading of the last couple of conference calls suggests some near term problems. The top line growth has slowed, and promised rebounds from "lumpy" quarters has simply not shown up.

    In addition, I am a bit concerned about the slowdown in the oil and gas sales. Plus, the winter weather may have slowed down new installations at remote oil and gas locations.

    For the longer term CPST has tremendous potential. I just think I will be able to buy it under $1.40 in the next couple of months...

  • Report this Comment On February 26, 2014, at 7:31 PM, DoubleFelix wrote:


    I think that is a fair concern. However, I don't see Capstone as being very similar to Westport or the other transpoprtation-oriented stocks. Those stocks are having trouble because: a) every fuel price fluctuation creates doubt as to whether switching from regular old Diesel makes sense, and b) we will continue to have a chicken-egg situation on infrastructure for years.

    My view of Capstone is that they have a viable business case based entirely on fixed installations (i.e. power generation). Anything that might develop in the transportation sector is gravy, and if nothing develops, they can still have a viable business.

    For example, if you look at the fracking operations that are geared toward extracting oil, many of them flare off enormous amounts of natural gas. It should be a no-brainer to roll in a Capstone generator to harvest electricity from those operations and add it to the grid.

  • Report this Comment On February 27, 2014, at 3:33 PM, drl9801 wrote:

    We all need to think about how we use our energy. Capstone is a great way to use some of the resources generated by oil wells. Most of these fuels are burnt off as they are extracted from the ground and if they can direct some of these gases and use them to fuel these generators to run the rigs and other parts of the operation, then that is a win, win, situation . Who ever say , there are 3 reasons to get out of Canadian stocks needs to get their head checked . Both our great country's depend on one another , whether some dumb ass analyst thinks so or not . We share a great deal in common and will always do that. I'm proud to be a Canadian and I'm proud to have Americans as our neighbours to the south. Great countries, great friends and great stocks to share.

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Neha Chamaria

Neha has been contributing to since 2011, including a one-year stint at the Foolish Blogging Network. She focuses on materials and industrials sectors, with special interest in fertilizers, chemicals, and heavy-equipment companies. Neha loves decoding 10Qs and 10Ks to dig out information about a company an investor would otherwise not know; and cracking the real reasons behind a stock’s move thrills her. Check back at for her articles, or follow her on Twitter

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