Many companies are having tough times due to weaker oil prices. However, this weakness in the oil industry is giving many players such as Westport Innovations (WPRT, Financial) bright long term opportunities. The lower oil prices are leading to growth in natural gas usage, and with the stability of natural gas prices, Westport is seeing good support for continued fleet migration. Management of the company is confident of its better performance in the future as the oil prices are not expected to recover in the near term, giving it bright opportunities to improve its financials in the long term.
On track for growth
Westport seems well on track for its growth in future. Its core segments including transit, refuse truck and urban trucking are showing good progress. It is now working on adding more value to its core business and for this, the company is now focusing on various initiatives. In addition, Westport also has joint ventures and it is expecting these joint ventures to play an important role. For example, in China, the company has entered a joint venture with Weichai which is a wise move by Westport as with this joint venture, Westport has now success access to 2.8% market share of the entire global medium and heavy duty engine market.
Westport is focusing on maintaining a competitive product portfolio for future. In the next 10 years, Westport is aiming at delivering new next-generation products to its established customer base. Under this, Westport is making significant investments in HPDI 2.0 to make an advanced spark ignition technology delivering power, better fuel economy, and better greenhouse gas performance with lower costs. With this, Westport is also expecting better investor engagement to the stock which will help company to catch up quickly with the market growth.
Headwinds and beyond
But, Westport is also likely to face some headwinds. As the gasoline engines are quickly moving to advanced direct injection system, these traditional natural gas conversion system are getting out of the league. But, Westport is working on OEM bi-fuel injection and it is bringing in such vehicles in second quarter of the new fiscal year. These might only be short term headwinds which Westport thinks will vanish as the company strengthens its market position with its new products. Despite these positive signs, Westport is expecting the upcoming situations to be slightly soft for its ATG and On-road systems unit. But the company has always been working on reducing the costs and it thinks that these efforts will again benefit Westport to get over this headwind too.
Westport also has aggressive investment plans. It is investing significantly in some areas which however are improving slowly but are sure to be profitable for it in long run. Under some of these areas it is making investments in off-road applications including mining, rail and marine. All these aspects indicates that the situation might be soft for Westport now, but in future it is going be a high flying stock.
Conclusion
The stock can be a good long term holding as in the next five years its earnings are growing at a CAGR of 30.00% as compared to industry average of just 21.12%. So I would like to suggest the near term investors to wait for the stock to gain market and then invest in it for better profitability.
