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Westport Innovations has gained rapidly in the last three months after solid first-quarter results, and the trend should continue with its second-quarter report.

Westport's revenue and bottom line should improve tremendously, driven by the solid adoption of NGVs and its impressive product development.

Westport has expanded its presence across the globe in key markets, so it should issue a strong outlook.

Westport Innovations (NASDAQ:WPRT) has surged remarkably since it reported its first-quarter report early in May. In fact, over the past three months, Westport shares have gained more than 30%. The maker of natural gas engines has done well despite possible competition from Tesla Motors (NASDAQ:TSLA). With its second-quarter earnings expected on July 31, will Westport be able to carry this momentum forward? Let's find out.

The expectations

Once again, Westport is expected to report rapid growth in revenue and the bottom line. Analysts expect the company's top line to increase almost 29% year over year. In addition, Westport's loss is expected to come in at $0.41 per share as compared to $0.61 in the year-ago quarter. Hence, the company is expected to deliver yet another quarter of solid growth.

This isn't surprising, considering that Westport had delivered an impressive performance the last time as well. Westport Innovations had topped analysts' expectations in the first quarter, and also narrowed its losses. The stock's recent surge shows that it is gaining investors' confidence. In fact, its revenue in the first quarter increased 39% year over year to $41.9 million. Its net loss declined to $23.9 million from $31.8 million in the same quarter last year. Looking ahead, the momentum looks set to continue.

Growing the business strategically

Westport's results reflect the strength of management's decision making and execution, which have enabled it to reduce losses and boost revenue. Management has laid three primary goals for the current fiscal. First, it expects to drive positive adjusted EBITDA by the fourth quarter, along with profitable growth in its joint ventures. Second, Westport plans to manage its investments carefully, so that the cash flows from its sales and other operations will be properly channelized, resulting in positive adjusted EBITDA. Lastly, Westport remains committed to its strategic partners and OEM's, along with building new customer relationships, to continue its strong pace of revenue growth.

Westport management has made several changes in the past six months that have curtailed unnecessary costs, and allowed individual businesses to emerge successfully. For instance, after the acquisition of BAF last year, Westport has become the largest player in the Ford QVM program with more than 70% market share. Similarly, Westport has partnered with Volvo to deliver volumes through their traditional dealer channels in Europe. This business has now become profitable after three years of investment.

Westport also has various new products under its sleeve, some of which have been launched, while others are still in the pipeline. These will play an important role in fueling its growth. For example, Westport launched the WP580 system with Tata Motors (NYSE:TTM) in February for bus and truck applications. The company is working with Universal LNG to use this controller system for industrial applications such as water pumps.

Product innovation-driven growth

Westport has partnered with various OEMs such as Volvo, Weichai, Delphi, etc. to develop a portfolio of new natural gas vehicle products, technologies, and related systems. The company cites three major areas where these products can be applied -- global trucking, automotive, and off-road applications such as rail and large mine trucks. These product developments are crucial to the firm. Therefore, Westport is managing these projects carefully and expects them to yield high returns in the future.

For instance, Westport entered into a joint venture with Delphi to develop second generation fuel injection components for its HPDI (High Pressure Direct Injection) systems. This would lower the cost, which will be passed onto its OEM customers and ultimately catalyze the adoption of natural gas trucks around the world. Similarly, with Weichai, it is launching a 12-liter engine product, anticipating volume production of trucks in China in the next fiscal. There are other such strategic partnerships, which will be a key growth driver for Westport in the coming months.

The market opportunity

Moreover, the market for natural gas vehicles is growing at a terrific pace. According to Investopedia:

"Nonetheless, the future continues to look bright for natural gas powered cars and trucks. According to cleantech think-tank Navigant Research, global annual light duty natural gas vehicle sales will grow from 2.3 million vehicles this year to reach nearly 3.8 million in 2023.

At the same time, heavy duty CNG/LNG vehicle usage is set to explode in the U.S. sooner as more logistics and service firms switch over to realize the cost savings. The National Petroleum Council estimates that 40% of all new heavy trucks in the U.S. will run on natural gas by 2045 if diesel prices increase at current rates. However, if they jump faster than expected, that 40% number will arrive by 2025."

The Tesla concern

However, investors should keep an eye on Tesla Motors' Gigafactory initiative. According to Green Tech Media:

"The as-yet-unnamed location of Elon Musk's outrageously ambitious $5 billion Tesla battery factory has been narrowed down to Texas, Arizona, New Mexico or Nevada for a while now. Construction could potentially start this year.

Electric vehicle pioneer Tesla Motors has suggested it will be building 500,000 cars per year by 2020 and hitting a scale that will drive down the cost of its 60 kilowatt-hour battery pack by 30 percent, to about $10,000. The project aims to disrupt battery costs enough to impact the distributed storage industry."

As such, this might prove to be a threat for Westport's natural gas engines in case the cost of buying electric vehicles drops. Tesla is trying to do just that by lowering the cost of batteries. However, Tesla faces the challenge of building a supercharger network on its own. The company now has around 100 supercharger stations, with 86 in North America.

But, Westport's advantage is that it doesn't need to build its fueling infrastructure on its own. The likes of Clean Energy Fuels (NASDAQ:CLNE) are already building natural gas fueling stations at a good pace, and this will spur the adoption of natural gas engine-powered vehicles in the long run, benefiting Westport.

Fundamentals and conclusion

Westport isn't a profitable company yet. As such, it does not have an earnings multiple. But, the company has a robust balance sheet, carrying cash of $184 million and debt of just $64 million. Moreover, Westport's bottom line is expected to grow at an annual rate of 30% for the next five years. The company is on track to benefit from natural gas vehicles in the long run, and investors can expect yet another solid performance in the second quarter.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.