An Update On Westport Fuel Systems
- The stock fell to a new low with the rest of the market in March.
- The shares doubled on high volume.
- A promising Q1 report from the company.
- Insider buying is a positive sign.
- Is WPRT a buy again?
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The last time I wrote about Westport Fuel Systems Inc. (NASDAQ:WPRT) on Seeking Alpha was on October 29, 2019. On that day, WPRT shares were trading at $2.71. I suggested that “November 7 is the next time the company has the potential to surprise the market and ignite a rally.” On November 8, the stock reached its peak at $3.39 per share, where it ran out of steam on the upside.
WPRT engineers, manufactures, and supplies alternative fuel systems and components for use in transportation applications worldwide. The company has a joint venture with Cummins Inc. (CMI), a leading engine manufacturing company.
Like many shares, WPRT fell like a stone during the price carnage in the stock market in March. After closing at $2.37 per share on December 31, 2019, the stock fell to a low of 70 cents on March 23. WPRT shares made an impressive comeback since the March low, but there is still room for the stock to move higher. I had not recommended a long risk position in WPRT shares since the stock was at just above the $1 level in February 2019, but now could be an excellent time to add this stock to your investment radar.
The stock fell to a new low with the rest of the market in March
The high is WPRT shares was at $2.86 on January 13, which was the highest level since mid-November 2019.
The chart shows that the selling that hit the stock market in late February through mid-March took the price of WPRT shares to a low of 70 cents. The bottom on March 23 was the lowest in history.
The shares double on high volume
When a stock moves to the upside and higher volume accompanies the rally, it tends to be a technical validation of an emerging bullish trend.
The chart shows that on April 29, WPRT shares moved from 87.1 cents to $1.27 per share and settled at $1.11. The volume on that day was just over 4.6 million shares. On May 11, the stock moved from $1.04 to $1.38 on a volume of almost 5.5 million shares. The next day, WPRT reached $1.57 per share. WPRT was trading at $1.47 on Monday, June 8.
Some promising news in the Q1 report from the company
Analysts were expecting a five cents per share loss for WPRT in the first quarter of 2020. The earnings were worse at an eleven cents loss. While WPRT missed the consensus earnings estimates by a mile, it did better than expected on revenues. According to Zachs, the company has topped revenue estimates four times over the past four quarters, and Q1 was no exception. Westport posted revenues of $67.22 million in Q1, companies to $73.19 million at the same time in 2019. However, the revenues were a bright spot for the company.
During the earnings conference call that followed the earnings release, explained the company’s approach for the post-Coronavirus recovery. CEO David Johnson said, “Post-COVID the challenges of climate change and urban air quality have not disappeared. The need to efficiently move goods hasn’t disappeared. The world needs affordable, clean transportation more than ever.” He went on to explain that “cost reduction, disciplined cash management, and supporting our global team and their communities as we navigate this recovery period” is the company’s focus.
Recent tests of WPRT products in China had positive results. The EU’s Green Deal includes measures to increase the support of low emissions fuels, which improves demand for WPRT’s engines.
Insider buying is a positive sign
According to Yahoo Finance, there have been two insider transactions to buy a total of 1.550 million shares and no sales over the past six months. Insiders hold 13.95% of the company’s shares, with almost 25% owned by institutions.
WPRT has a market cap of $202.063 million and trades an average of around 2.3 million shares each day. Five analysts on Yahoo Finance have a one-year target of $3.50 per share for the stock, with a range of $2.50 to $5.00.
Is WPRT a buy again?
Westport Fuels shared have made two significant comebacks since early 2017.
The chart shows that the shares rose from 82 cents in March 2017 to a high of $4.33 in early 2018. The next rally that began at $1.17 in February 2019 took the stock to a high of $3.39 in November 2019.
The first level of technical resistance on the stock stands at the November 2019 high. WPRT has made lower highs over the past years, but the stock could still have plenty of upside potential from the closing price on June 8 at $1.47 per share.
In a world that looks for a cleaner environment, the addressable market for WPRT’s fuel systems and components is likely to expand. At below the $1.50 level, the stock is inexpensive if the stock market continues to move higher over the coming weeks and months.
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Andy spent nearly 35 years on Wall Street, including two decades on the trading desk of Phillip Brothers, which became Salomon Brothers and ultimately part of Citigroup.Over the past two decades, he has researched, structured and executed some of the largest trades ever made, involving massive quantities of precious metals and bulk commodities.
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