Please ensure Javascript is enabled for purposes of website accessibility

Why Capstone Turbine Shares Are Launching Into Space

By Neha Chamaria – Nov 8, 2013 at 3:09PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is it time to buy into Capstone's rally on a good earnings report?

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: Shares of micro-turbine maker Capstone Turbine (CPST -2.21%) were on a tear, tacking on 13% this morning after the company announced lower losses on a double-digit top line growth for its second quarter.

So what: Capstone's revenue climbed 45% sequentially, and 17% year over year, to $35.3 million. More notably, its gross profit surged a whopping 88% to $4.9 million.

As a result, Capstone's gross margin expanded significantly to 14%, from just 9% year over year. This marked the fourth consecutive quarter of double-digit growth in the company's gross margin, indicating solid cost control on management's part.

The company has yet to turn a profit, but it cut its losses by a significant 42% year over year to $3.9 million, or $0.01 per share. Perhaps that's what got the market so excited.

The most notable part of the earnings report, though, was Capstone's growing backlog value, which increased 6% year over year to $149.8 million. Backlog is a key indicator of future potential revenue.

Now what: Solar installations may pose a threat to Capstone's power-generation equipment, but the company's order books are filling up fast. A "leading natural-gas producer" in the U.S. placed back -to-back orders in each of Capstone's last two quarters. Another Australian coal seam gas company, which has been a Capstone customer since 2008, placed a follow-on order in the second quarter. These two cases indicate Capstone's growing customer base and loyalty. Furthermore, Capstone also received orders from Mexico and announced expansion into the marine market in recent months.

Clearly, Capstone is not only expanding into global markets, but also foraying into new industries, which is good news for investors going forward. The company already ships 67% of its equipment today to the high-potential oil and gas sectors.

At the same time,Capstone is also starting to command higher selling prices for its equipment. Its average revenue per unit increased $17,000 sequentially, to $135,000 per unit in the last quarter. That should further push Capstone's revenue higher, and help the company turn profitable faster.

The good news is that Capstone expects its revenue to grow at an acceleratingpace over the next two quarters, and hopes to break even on operating earnings by the fourth quarter. I think this guidance, combined with Capstone's growing order book and narrowing losses, are compelling reasons to keep a close watch on this little stock.

Fool contributor 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Capstone Turbine Corporation Stock Quote
Capstone Turbine Corporation
CPST
$1.77 (-2.21%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.