Based in Vancouver, Canada, Westport Fuel Systems Inc. (WPRT) participates in the engineering, manufacturing, and supply of alternative fuel systems and components for use in transportation applications worldwide. The company operates through Original Equipment Manufacturer and Independent Aftermarket segments. Last year. WPRT experienced constrained customer demand and margin pressures due to lingering COVID-19 restrictions, supply chain shortages, and other disruptions in the industry. The company expects its production, sales, and profitability to improve this year.
However, uncertainty remains in its near-term prospects because of the inflationary environment and the Russia-Ukraine war. The company conducts a substantial portion of its LD OEM and IAM businesses in Russia, and the sanctions against Russia by several countries to impose economic pressure on the Russian government could hinder its growth trajectory in Russia. “We cannot provide assurance that future developments in the Russian-Ukraine conflict would not have an adverse impact on the ongoing operations and financial condition of our business in Russia,” the company stated.
WPRT shares have slumped 82.5% in price over the past year and 35.4% year-to-date. The stock has plummeted 10.5% over the past month to close its last session at $1.53.
Here is what could shape WPRT’s performance in the near term:
Poor Profitability
WPRT’s 15.41% gross profit margin is 47.2% lower than the 29.19% industry average, while its net income margin is 32.8% lower than the 6.50% industry average. Also, its EBITDA margin and levered FCF margin of negative 5.82% and 16.58%, respectively, are substantially lower than the 13.28% and 4.21% industry averages.
Furthermore, WPRT’s 8.02%, 2.90%, and negative 7.30% respective ROE, ROA, and ROT compare with the 13.81%, 5.12%, and 6.83% industry averages.
Topline Declined in its Last Reported Quarter
WPRT’s revenues declined 1.4% year-over-year to $82.70 million in its fiscal fourth quarter, ended Dec. 31, 2021. The decline was attributed to manufacturing delays caused by the shortage of semiconductors in its heavy- and light-duty businesses. Its gross margin decreased to 11% from 15% one year ago. The company’s earnings per share came in at $0.03, unchanged from the year-ago value. Its EBITDA decreased 35.9% year-over-year to $8.40 million. However, its adjusted EBITDA rose 23% from its year-ago value to $10 million. In addition, the company’s trailing-12-month net operating cash flow and levered FCF stood at negative $43.79 million and $51.80 million, respectively.
Bleak Near-Term Prospects
Analysts expect the company’s revenue to decline 4.9% year-over-year in the current quarter, ending March 31, 2022, to $72.62 million. And its revenue is expected to decline 7% year-over-year to $78.78 million in the next quarter. The negative $0.05 consensus EPS estimate for the current quarter indicates a 154.4% year-over-year decline. And its EPS is expected to remain negative at least this year.
Unfavorable POWR Ratings
WPRT has an overall D rating, which translates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
WPRT has a D grade for Quality, which is consistent with its lean profit margins.
The stock also has a D grade for Stability, which is in sync with its 2.92 beta.
Among the 69 stocks in the Auto Parts industry, WPRT is ranked #58.
Beyond what I have stated above, one can also view WPRT’s grades for Sentiment, Growth, Momentum, and Value here.
View the top-rated stocks in the Auto Parts industry here.
Bottom Line
Given the ongoing clean energy drive worldwide, WPRT, which focuses on advanced clean fuel systems, is expected to enjoy a massive market demand in the coming years. However, considering the near-term uncertainties ahead, it could be best to avoid the stock now.
How Does Westport Fuel Systems Inc. (WPRT) Stack Up Against its Peers?
While WPRT has an overall POWR Rating of D, one might want to consider investing in the following Auto Parts stocks with an A (Strong Buy) rating: Genuine Parts Co. (GPC) and Ituran Location & Control Ltd. (ITRN).
WPRT shares fell $0.05 (-3.27%) in premarket trading Thursday. Year-to-date, WPRT has declined -35.44%, versus a -8.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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