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Why Westport Fuel Systems Stock Cratered Today

By Rich Smith - Mar 16, 2021 at 2:45PM

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This is not the response investors usually give to earnings beats.

What happened

Shares of Westport Fuel Systems (WPRT -1.63%) were tumbling in Tuesday trading -- down 13.8% as of 2:41 p.m. EDT -- and that's pretty strange, because on Monday night, the maker of natural-gas-fueled engines reported its fiscal fourth-quarter results.

And it beat earnings.

Big red arrow going down over a stock chart

Image source: Getty Images.

So what

The analysts' consensus forecast had been that Westport Fuel Systems would just barely break even on sales of $69.3 million in Q4. But Westport actually earned $0.03 per share under honest-to-goodness generally accepted accounting principles (GAAP), and its sales in the quarter were $83.9 million -- up 13% year over year.    

Granted, Westport still ended up with a loss for the year -- $0.05 per share -- and sales fell 17% to $252.5 million in 2020, a decline it attributed to the impact of the pandemic on customer demand.

Still, all of the above was better than Wall Street had forecast, which makes investors' logic in deciding to sell off the stock Tuesday -- and by so much! -- something of a mystery.

Now what

Granted, sometimes stocks do sell off after "beating earnings." But that usually happens when they've reported good numbers but warned that less upbeat results are likely to come in the future. Westport didn't do that, either, however.

On the contrary, while management didn't give firm guidance on what to expect in 2021, Westport cited "the robust recovery in our revenues" in the fourth quarter as evidence the company is "poised for growth and continued positive momentum" in the new year.

So why is the stock down Tuesday? If I had to pick the one bit of bad news that I think might have offset all that good news and frightened investors, I'd point to this: Despite reporting positive profits in Q4, and a smaller-than-expected loss for the year, Westport burned through more cash in 2020 than it had in 2019 -- all told, about $42.3 million in negative free cash flow. If it keeps that up, Westport could run out of money within a year, and either need to borrow more or sell more shares to stay solvent.

Despite the earnings beat, if that risk is what's leading shareholders to sell Tuesday, I cannot say I blame them.

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