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: Capstone Turbine (CPST) shares have gone bonkers, but for a reason. After rallying through the week, the shares surged nearly 10% in today's trade on yet another order announcement by the company.
So what: After bagging orders from the Marcellus and Utica Shale regions last week, it was the turn of Permian Basin this time. Capstone received orders for a total of 27 microturbines from oil and gas producers operating in the region. The deal is significant for several reasons.
One, multiple orders from same customers shows how Capstone's turbines are gaining popularity among the oil and gas companies in the U.S. Two, this order also marks Capstone's "first multiple megawatt project" to power electricity grid in the Permian Basin. Three, and most importantly, with the Permian being touted as America's next great shale play, Capstone may have just found a gold mine. For perspective, some analysts project crude production from the Permian to double by 2018. So you can imagine the kind of opportunity that Capstone is staring at.
Now what: It is undoubtedly a big order for Capstone Turbine. The company is rapidly gaining ground in the lucrative and high-potential oil and gas sector, as evidenced by the string of orders that it has received of late. And do you know which companies have already made it to Capstone's customer list? Chesapeake Energy, Chevron, Anadarko Petroleum, Hess, Linn Energy, and Marathon Oil are just to name a few.
In short, Capstone is taking the sector by storm with its small, but power-packed low-emission turbines. That partly explains why its revenue and gross margin expanded by double digits last year. Though Capstone is yet to turn in a profit, a swelling order book and surging top line should enable it to break even soon. Today's order should just give you another reason to keep this little stock on your radar.
