Should You Continue Shorting Westport Innovations?

Shares of Westport Innovations (WPRT) have depreciated over 50% since I first recommended shorting the stock back in June 2015. However, investors shouldn’t be tempted into buying the stock as I believe it has more downside to offer and will continue falling. Investors should keep their short positions open. Initiating a short position isn’t as attractive as it was six months ago, but I think still the stock can be shorted with potential profits of 10% to 15%. Hence, I think the stock is a short.

I have successfully shorted the companies that have never been profitable and have a track record of reporting losses.
The likes of these companies include Yelp, SolarCity, Pandora, Angie’s List, and Plug Power. Despite reporting losses, these companies were reporting impressive increase in sales. However, Westport Innovations is worst position that the above mentioned companies as it has been reporting losses for over five years now.

Westport’s Q3 results were shambolic as it missed the consensus estimates on earnings as well as revenue. Given the drop in sales, a turnaround seems like a pipe dream and I can see the stock falling more thereby making it a good short.

More Pain Ahead

Natural gas prices are near multi-year lows, but of Westport’s engines will not gain any traction due to the steep drop in crude oil prices. Crude oil prices have dipped below $35 per barrel and right now it doesn’t make sense for consumers to pay a hefty premium for natural-gas powered trucks.

Natural-gas powered vehicles usually cost about $50,000 more than their diesel vehicles. Thus, investors can expect sales to shrink in the weak crude environment. Crude oil prices aren’t expected to recover anytime soon either. For Westport’s engines to gain traction, the company needs a massive difference between natural gas and crude prices, and currently that doesn’t look like happening as the latest OPEC meeting ended in stalemate.


With crude supply still exceeding demand, Westport will not only continue losing money, its sales will also drop. The stock may have fallen considerably over the last few months, but it still has more downside potential. Given the rate at which Westport is burning cash, it will soon run out of money and will probably have to resort to dilution and asset selling to raise cash. Hence, I think investors should not cover their short positions and in fact open up a new short position.
Published on Dec 23, 2015
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

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