It has been almost 4 years since I wrote up an article on (NASDAQ:WPRT), and for good measure. There merely hasn’t been something constructive sufficient to deliver as much as energize curiosity on this different gas microcap identify. Simply failure, despair, and a slew of excuses longer than a CVS Pharmacy receipt. Fixed hate promoting has been the dominant drive. Now there are slight clues that the tide may lastly be turning right into a extra constructive course.
Excuses galore: Throughout the firm’s third quarter convention name, administration had many excuses for one more lackluster quarter. Headwinds had been: (1) lack of Russian enterprise, (2) provide chain constraints, (3) the detrimental affect of the international foreign money change fee, (4) excessive pure gasoline costs, (5) runaway inflation, and (6) working bills rose 18% from $18.80 million to $22.20 million.
There have been a couple of glimmers of hope talked about: Gross revenue margin really elevated 14.30% from 14% to 16% and gross sales would have risen 10% to $82 million vs $74.30 million, if it wasn’t for the foreign money change loss suffered. As well as, the corporate reported encouraging information relating to its Scania hydrogen partnership:
“We’re thrilled with the latest outcomes of our demonstration program with Scania. Our resolution not solely permits OEMs to protect their current manufacturing infrastructure and related substantial capital investments, nevertheless it additionally demonstrates that an engine utilizing HPDI with hydrogen can obtain considerably higher efficiency and effectivity than with diesel gas. These outcomes are a step ahead in demonstrating our H2 HPDI™ gas system is a cost-competitive pathway to scale back CO2 emissions from heavy-duty transportation purposes that require strong and dependable options”.
Fourth quarter outcomes on deck: the corporate is about to launch its fourth quarter leads to mid-March. Analyst expectations are bleak. Gross sales are anticipated to fall 10% from $83 million to $75 million. Earnings are slated to take a 9-cent detrimental reversal from being within the black by 3 cents to a lack of 6 cents. This very low bar might be a blessing in disguise, because it creates a better alternative to come back in higher than expectations, thus rewarding the share worth.
The inventory worth has lately been robust, very robust. Up to now 5 weeks alone, it has rallied 65% from a 52 week low of 75 cents to $1.24. This energy may have been aided by heavy insider buying. The CEO bought 65,000 shares within the open market on 12/23/22 whereas outdoors director Brenda Eprile went to the nicely two instances, shopping for 20,000 shares on 12/23/22 and the identical qty on 12/29/22.
These insider purchases ought to completely add confidence, as insiders purchase for just one reason-to earn cash. They’ve extra intimate information of the corporate than anybody else, so why not observe the sensible cash? Coincidently WPRT’s largest single shareholder with a ten.60% stake (Kevin Douglas) has been disappointingly silent. It will be so good if he determined to take a extra lively function within the firm, however that might be asking for an excessive amount of. He is been useless quiet for the previous decade – not even a peep.
WPRT has lately been presenting at funding conferences: this motion might be additional aiding the share’s latest energy. Occasions carried out previously six weeks had been: (Capital Markets Day) and the Cowen podcast.
The six analysts who present analysis protection present a combined bag of optimism with simply a median goal worth of $3.18. Essentially the most pessimistic promote aspect analyst initiatives a $1.50 one yr goal worth, whereas WPRT’s most bullish cheerleader (Oppenheimer) holds a $5 goal in place. Definitely, numbers to not get too enthusiastic about, though the shares have proven nice energy previously. Within the eight-month interval between June 2020 and February 2021, the inventory worth skilled almost a 1000% improve from $1.24 to $12.00. The excellent news for longs? Historical past does generally tend to repeat itself. If it occurred earlier than, it may occur once more.
The stability sheet is sound: Due to the corporate’s profitable secondary providing again in June of 2021 which raised over $100 million of money on the sale of 20 million shares, the enterprise has the liquidity to attend issues out. With a money stability of $86 million and simply $18 million of long-term debt, money burn will not be an actual menace at this juncture. Valuation metrics are sound too, resembling a present ratio of two.33, a worth to gross sales ratio of .63 and a worth to e book computation of .92. These all level to a most undervalued state of affairs.
Comparability with business friends: When you evaluate each Clear Vitality Fuels (CLNE) and Hyliion (HYLN) you’ll perceive how undervalued WPRT actually is. Hyliion Holdings has a market cap thrice larger than WPRT but has just about no gross sales. Clear Vitality Fuels Corp. has a market cap 600% better than WPRT but their revenues are a mere 33% larger. Both each these corporations are method overvalued, WPRT is undervalued or a mix of each.
HPDI 2.0 parts: WPRT already gives HPDI 2.0 parts to Volvo Europe, however the actual “co de grau” is WPRT’s contract with the Chinese language truck engine producer Weichai Energy Firm Ltd. This contract is the actual deal. Its phrases dictate a minimal 25,000 items shall be delivered by December 31, 2024. The launch date has been delayed attributable to certification snafus, the rising value of pure gasoline, and provide chain points. As soon as these kinks are labored out and the launch happens, it will likely be a particular sport changer.
Potential dangers are obvious. In my view, excessive reward equals excessive danger and WPRT is definitely not void of its share of potential perils. This mine-field contains the next: (1) the price of pure gasoline changing into too excessive compared to diesel gas (2) electrical semi-truck engines evolving to a extra viable, economically useful different, (3) unfavorable foreign money change charges, (4) manufacturing slowdowns attributable to provide chain constraints, and (5) money burn considerations and skill to service debt.
Though the inventory rising above $1.00 mitigates the danger of a NASDAQ delisting, a one for ten reverse inventory break up ought to strongly be contemplated. This would scale back the shares excellent from 170 million to 17 million and improve the share worth from $1.24 to $12.40. Though this may have completely no affect on the corporate’s market cap, it will take the corporate out of junk standing and allow it to realize extra respect. Traders/establishments are recognized to be disdained by penny share standing. The next worth would permit some establishments to start shopping for once more, instantly creating extra demand.
As well as, administration ought to give attention to reducing prices to the bone in an effort to get lean and imply. Their first act of this conquest must be for all administration personnel to take a short lived 10% pay reduce. As I mentioned earlier, WPRT’s G&A prices rose almost $4 million regardless of a discount in gross sales. That is merely unacceptable. Administration must be extra accountable, extra clear and extra shareholder pleasant. This is not asking for an excessive amount of. It must be the norm, not the exception.
By way of the inventory, I say go together with the pattern and catch the momentum practice. Do not be afraid to purchase extra (common up) because the share worth will increase. It’s price paying extra to get the pattern in your favor. If the corporate is ready to begin transport to China, a big rise within the share worth is possible. In spite of everything, administration has guided a revenue milestone of $1 billion by mid-decade.