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Based in Canada, Westport Fuel Systems Inc. (WPRT) manufactures advanced fuel delivery components and systems for the automotive industry. WPRT shares have gained 145.5% in the past year, reflecting strong investor interest in the clean energy sector.
The stock has gained around 25% since the company released an impressive earnings report on August 6. Its revenue grew 135% year-over-year to $ 84.70 million for the second quarter.
Its net income was $ 17.20 million, up 475% or $ 14.20 million from the same period last year. However, 62.7%, or $ 8.90 million, of the growth in its total net income can be attributed to tax clawback under Italy’s COVID-19 tax relief decision.
So here is what we believe could shape WPRT’s performance in the short term:
Marketed public offer and returns for shareholders
WPRT administered a public share offer in the United States and Canada in June in which it issued 20.93 million shares for which it received $ 115.12 million in gross proceeds. The company plans to use the proceeds to finance its capital expenditures for research, development and expansion of its production capacity. It also plans to finance possible acquisitions to fuel its inorganic growth and meet the company’s overhead costs.
However, the company’s investments may take some time to generate profits. At the same time, the dilution of its capital by issuing new shares should reduce its EPS and ROE in the short term.
Low profit margins
WPRT’s last 12-month revenue grew 22.8% year-on-year to $ 310.45 million. Its gross profit was $ 51.84 million, a margin of 16.7%. However, the company’s gross profit margin is 43% lower than the industry average of 29.29%.
Its operating loss and loss before interest, taxes, depreciation and amortization were $ 24.52 million and $ 10.25 million, respectively. WPTRT’s last 12-month ROTC is negative at 6.29%, while its EBITDA margin is negative at 7.9%. Its CapEx / Sales ratio of 2.19% is 8.7% below the industry average of 2.4%.
The company’s net profit for the last 12 months was $ 19 million, due to foreign exchange gains and profit from unusual items. However, its net profits can be misleading due to exchange rate fluctuations and speculative gains.
Poor capital structure and liquidity
WPRT’s total debt is $ 100.68 million. But with a total cash balance of $ 171.69 million, his net debt stands at $ 71.01 million. In addition, the Company’s 12-month net operating cash flow and leveraged free cash flow are negative at $ 27.60 million and $ 27.93 million, respectively.
Thus, without sufficient cash flow, the solvency of the company is of concern. Its debt / free cash flow ratio is negative at 1.80. In addition, its leveraged free cash margin over the last 12 months is negative 9%.
Stretched evaluation
In terms of a non-GAAP futures P / E, WPRT is currently trading at 40.50x, which is 95.4% above the industry average 20.73x. Additionally, the EV / EBITDA and futures price / sales multiples of the stock of 26.31 and 2.30, respectively, compare favorably to the industry averages of 12.27 and 1.53. In addition, the 3.57 before WPRT Price / book ratio is 15% higher than the industry average of 3.11.
POWR ratings reflect grim prospects
WPRT has an overall D rating, which is equivalent to Selling in Our Own POWR odds system. POWR scores are calculated taking into account 118 separate factors, each factor being weighted to an optimal degree.
WPRT has a D rating for stability and value. Its relatively high beta of 2.97 and its premium valuation justify the Stability and Value ratings.
Of the 67 actions of Car parts The industry, WPRT is ranked # 56.
In addition to the notes that I have highlighted, one can consult the WPRT notes for Momentum, Sentiment, Growth and Quality here.
Click here to view the top rated stocks in the auto parts industry.
Final result
WPRT is a promising player in the automotive supplier industry, with promising growth prospects as clean energy investments are currently near historic highs. However, the company’s revenue growth does not translate into proportional profits, which indicates operational inefficiency. Thus, we believe that investors should wait until the company’s profit margins improve before investing in it.
WPRT shares were trading at $ 4.89 per share on Wednesday afternoon, up $ 0.03 (+ 0.62%). Year-to-date, the WPRT has fallen -8.26%, compared to a 19.35% increase in the benchmark S&P 500 over the same period.
About the Author: Aditi Ganguly
Aditi is a seasoned content developer and financial writer who is passionate about helping investors understand the dos and don’ts of investing. She has a keen interest in the stock market and has a fundamental approach to stock analysis. Following…
