Without another record-breaking quarter, shares may sink further.
Capstone's share count is growing and may cause earnings-per-share headwinds.
It's all about guidance and if the backlog will give the company pricing power.
By Robert Weinstein
Background: Capstone Turbine Corporation (NASDAQ:CPST) engages in developing, manufacturing, marketing, and servicing microturbine technology solutions for use in stationary distributed power generation applications worldwide.
52 Week Range:1.07 to $2.60
Price To Book:12.8
Capstone Turbine is anticipated to give us a repeat performance of last year in this year's fourth-quarter earnings after the market closes on June 12, 2014.
The consensus estimate is currently losing 1 cent a share, the same as last quarter. At least the company is digging out and is on track to become profitable within the next six months.
Capstone Turbine competes in the same space as Caterpillar (NYSE:CAT), Cummins (NYSE:CMI), and Ingersoll-Rand (NYSE:IR). Obviously, I'm using "compete" rather loosely as Capstone Turbine's $135 million annual revenue is slightly more than a rounding error for Caterpillar's $56 billion. In its relatively small focused space, Capstone's market share is strong.
The second smallest of the group, Ingersoll-Rand is almost 100 times larger based on revenue. Analysts are about the same across the four brands. Cummins enjoys the most buy ratings, but proportionately, Capstone Turbine ranks just as favorably.
Moderate Buy Buy
Moderate Sell Ratings
Strong Sell Ratings
Avg Analyst Price Target
Est Low EPS
Est High EPS
1 Year Stock Price Change
Caterpillar, Cummins, and Ingersoll-Rand don't report until July, so we are not able to use them to help predict if Capstone will beat or not.
We can't look at options to gain an idea of how much volatility traders expect because options aren't available, but the price is so low that the shares are almost the same as options without expiration dates.
Shareholders will focus on margins and if the company continues to maintain the 20% gross from last quarter. Last quarter was also a record for total revenue, albeit, profits remain elusive.
Investors are still able to get an idea of potential volatility from last quarter's results. After reporting February 10, the shares fell 10.4% the next day to close at $1.47.
Analysts aren't sour, but short sellers sure are. Keep in mind that most including myself consider short sellers the "smart money" on Wall Street. The short interest is anything but short. The number of shares shorted is markedly elevated and should be treated as a warning that shorts anticipate upcoming price weakness. The current float short is 17.10%.
In the last four years, the number of shares outstanding has continued to climb at an alarming rate. There's no doubt in my mind this is one of the catalysts for the bear thesis.
As long as the number of shares continues to climb, improving top and bottom lines will remain diluted and under pressure on a per share basis.
The price is cheap, and for good reason. You can buy this one if you believe the improving economy will continue and a rising tide lifts all boats. Otherwise, you may want to consider that the share price is cheap for a reason.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.