Capstone Turbine on the Cusp of a Turnaround

Aug. 2.06 | About: Capstone Turbine (CPST)

If you have a company that needs constant power and you don’t want to rely completely on the grid, Capstone Turbine (NASDAQ:CPST) might be a good solution.

The company produces micro-turbines, which are about the size of a refrigerator and generate 30 to 60 kilowatts of electricity, enough to power a small business. (They can also be used with hybrid vehicles.) They are highly efficient, reliable, and clean, producing very low NOx emissions. Also, unlike diesel generators, they can operate full time. These turbines can reduce energy costs, ensure power availability and offer the near-zero emissions that are increasingly popular.

Founded in 1988, Capstone has had quite a ride of late, like many of other "cleantech" companies. The stock is currently trading near its 52-week low around $2.00, well down from its high near $6. Its balance sheet is still in the red, with losses of $47 million over the past twelve months, and its beta is way up around 3.4.

But I think things are going to turn around for the company. Revenues have climbed nearly 50 percent annually for the past two years, and they doubled from the first quarter to the fourth quarter of 2006. If the company can continue this growth, it will be in the black before too long, operating in a sector that will continue to be in demand for the foreseeable future.

There will also be some new management policies that could help improve profitability. On July 24, Capstone’s CEO, John Tucker, announced he would step down on July 31 for personal reasons. This sent the stock up above $2.00 for a while, and while it was back down at the end of the week, I think investors will come around to seeing this as a real opportunity for the company.

Type of stock: A green-tech company at its 52-week low and which has a terrific technology with great appeal to customers looking for new power solutions.

Price target:
As long as this stays below $2.00, I think it’s worth picking up.