Why Shares of Capstone Turbine Corporation Surged 21% Last Week

After a huge week, are Capstone Turbine shares headed even higher?

Mar 18, 2014 at 10:32AM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis. 

What: New orders seem to have become the new normal for Capstone Turbine (NASDAQ:CPST). Shares of the microturbine maker rallied as much as 21% last week, backed largely by a fresh order. But the shares had already hit their five-year high on March 11, a day before the company announced the order.

So what: The market's excitement spilled over from the first week of March when Capstone announced orders for two C800 and one C1000 turbines for installation at a couple of Southern California hospitals. That may sound like a small number at first blush, but since C800 and C1000 are built by combining the 200-kilowatt turbine, it effectively was an order for 13 C200s. Also note that the C1000 and C800 series together accounted for nearly 44% of Capstone's revenue from microturbine products for the nine months ended Dec. 31, 2013.

Last week's order was bigger both by number and in terms of the market that it caters to. Capstone received orders for 50 C65 microturbines from North American oil and gas producers operating in key plays including the Eagle Ford, Permian, San Juan, and Wattenberg.

Now what: Repeat orders from oil and gas companies show that Capstone is rapidly gaining traction in the lucrative and high-potential sector. Here are two interesting facts that you should know:

  • The oil, gas, and natural resources sector accounts for nearly 60% of Capstone's shipments.
  • Capstone's existing customer list includes some of the biggest industry names, including Chesapeake Energy, ChevronAnadarko PetroleumHess, LINN Energy, and Marathon Oil.

Clearly, Capstone Turbine is on a roll. A rapidly growing order book even pushed the company's top line and gross margin to record highs in its last quarter. If the pace continues, Capstone should break even soon.

While Capstone investors had a valid reason to celebrate last week, one order wasn't enough to justify the massive rally in the share price. That may explain why the shares ended in the red yesterday, despite Capstone announcing its first-ever order from the United Kingdom: the British Royal Air Force wants to try out a C200 turbine.

But that was yesterday, and Capstone shares are back in action this morning; it looks like the stock doesn't need to take a breather so soon.

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Neha Chamaria has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

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