In each of the first two quarters of 2013, Westport generated an EBITDA (earnings before interest, taxes, depreciation and amortization) loss exceeding $25 million. And indeed, quarterly EBITDA losses are likely to exceed $15 million in the last two quarters of 2013 as well. But over the course of 2014, a resumption of solid revenue growth should sharply reduce the burn rate, and Westport may even generate positive EBITDA by the fourth quarter of 2014, according to some analysts’ models.
And as long as investors see that trajectory starting to take root, they will refocus on what is likely to be a solid revenue growth story in coming years. Simply based on the current budding joint venture relationships, Westport is expected to see sales hit $250 million next year and $350 million by 2015.
Lastly, it’s worth noting that Westport Innovations Inc. (USA) (NASDAQ:WPRT) has been awaiting a catalyst that has yet to arrive. Several ill-fated congressional attempts to mandate a much higher use of cheaper and cleaner natural gas in our nation’s trucking fleet have never been signed into law. Yet the issue still has bipartisan support, and if legislation is eventually enacted, this stock would take off like a rocket.
But legislation may not be necessary to get this stock moving higher. As the recent rise in crude oil prices and drop in natural gas prices again underscores, the lifetime fueling costs of natural-gas-powered truck fleets are considerably lower than those of diesel-powered fleets.
Risks to Consider: Although Westport currently has more than $100 million in cash (thanks to a well-timed secondary share offering in 2012), shares would fall even further if the cash burn doesn’t start to diminish as expected as investors would fret about yet another capital raise.
Action to Take –> As investor perceptions have shifted from Westport as a great growth company into a stubbornly unprofitable one, shares have fallen more than 40% since peaking in early 2012. Yet it’s precisely that pivot back toward growth perceptions — once the burn rate starts to quickly drop, that should send this stock higher.
P.S. — As I mentioned earlier, StreetAuthority’s Andy Obermueller predicted the rise of natural gas as a fuel source a while back. Some of Andy’s past predictions have returned up to 310% in a year, and well… Andy’s at it again… He’s released a special report “The 11 Most Shocking Investment Predictions For 2014” — which is chock full of his latest and greatest investment predictions. To learn more about his newest predictions, click here.
– David Sterman
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