What Makes Capstone Turbine a Buy

Capstone Turbine (CPST) is aggressively looking to increase its distribution channels in order to reach more customers. It has 95 distribution channels, 787 distributor employees, and 158 distributor locations. The important thing to note is that it is planning to add another 100 new distributors, who will play an important role in pushing the new signature series.

A growing distributor base is a catalyst

Thus, the company should benefit from a growing and maturing distribution channel that should be a competitive advantage for Capstone Turbine going forward.

In fact, its total pipeline of identified projects in salesforce.com totals approximately $1 billion in potential opportunities.

Moreover, the company during the quarter unveiled a series of new products that are mostly oriented towards the energy efficiency CHP/CCHP applications and less of oil and gas and other natural resources based application. This move should lead to an improved top-line performance going forward. Thus, the investors should not ignore this recent dip in the stock price.

Thus, moves such as these should allow Capstone Turbine to achieve profitability as soon as possible. On the same note, their CEO, Mr. Jamison, said, “With the improvements we have made, we believe we are firmly on the path of reducing our cost structure by 35%, increasing our gross margin to 25% and reaching our breakeven goal at approximately $25 million in quarterly revenue.”

Strong aftermarket business should be an added advantage

Apart from growth in the main business, Capstone Turbine is experiencing a good momentum in its aftermarket service business. For instance, its factory protection plan program or FPP for 2016 grew to a record $66 million, representing an increase of 9% as compared to FPP backlog of $61.2 million in 2015. This growth in the FPP backlog suggests that its after-market service business is growing at a reasonable pace. In fact, its service revenue for 2016 improved by 12% to $1.3 million as compared to $12.1 million in 2015.

Looking ahead, Capstone Turbine expects its after-market service business to grow significantly with the sale of its integrated heat recovery modules to C1000 Signature Series, driving its service business.

Conclusion

Capstone Turbine remains a safe investment in the long run. Its recent shift to the energy efficiency business from that of the oil and gas business will enable the company to improve its top line performance going forward. At the same time, the company is lowering its cost structure constantly, which should help the company to reduce its net losses and achieve breakeven sooner-than-expected.

Published on Jul 22, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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