Wind blade manufacturer TPI Composites, Inc. (TPIC), which has sold more than 65,000 wind blades since 2001, operates in four geographic segments: United States, Asia, Mexico, Middle East and Africa. Despite the growth in sales of TPIC in the fourth quarter (ended December 31, 2020), its shares have lost almost 11% in the past three months and 19.6% in the last month.

The weak performance of TPIC’s share price in the fourth quarter and the general market sell-off are mainly responsible for the stock’s sharp decline from an all-time high of $ 81.36 on February 16.

Additionally, the First Trust Global Wind Energy ETF (FAN), which focuses exclusively on the wind energy sector, has fallen 5.4% in the past three months, a testament to investor pessimism in the regard to the sector.

Here’s what we think could shape TPIC’s performance in the short term:

Narrow focus

TPIC manufactures and sells composite wind turbine blades and related precision casting and assembly systems to original equipment manufacturers (OEMs). It serves the transportation industry and the wind farm industry. The company is mainly dependent on long-term agreements with several companies. It has contracts with General Electric Company (GE), Vestas Wind Systems A / S (VWDRY) and Siemens AG (SIEGY), among others. However, GE acquired LM wind power, which is a strong competitor to TPIC, in April 2017. TPIC’s contract with GE ends in 2022, after which its sales could drop significantly.

Burn money

TPIC’s free cash flow for the fourth quarter, ended December 31, 2020, was negative $ 8.53 million. Its free cash flow for its fiscal 2020 was negative at $ 28.10 million. And while TPIC’s net sales increased 10.3% year over year for the fourth quarter, its cost of sales also increased 8.7% year over year for s ‘set at $ 420.25 million.

Low profitability

In terms of gross profit margin over the past 12 months, TPIC’s 6.5% is significantly lower than the industry average of 28.6%. Its 12-month leveraged free cash flow margin is negative compared to the industry average of 8.1%. In addition, the return on common stock and return on total assets for the last 12 months of TPIC over 12 months are also negative, compared to industry averages of 8.1% and 3.3%, respectively.

POWR ratings reflect bleak outlook

TPIC has an overall rating of D, which is equivalent to selling in our POWR rating system. POWR scores are calculated by considering 118 different factors, each factor being weighted to an optimal degree.

Our proprietary scoring system also rates each stock against eight different categories. TPIC also has a D grade for quality, in line with its profitability ratios significantly lower than those in the industry.

It also has a D grade for growth. This is in line with analysts’ expectations that its EPS will decline 800% year-over-year in the current quarter, ending March 31.

Beyond what we have stated above, we have also assigned TPIC ratings for value, momentum, stability and sentiment. Get all TPIC notes here.

TPIC is ranked 43rd out of 46 stocks in the Industrial – Manufacturing sector.

Better Than TPIC: Click here for access to several other top rated stocks in the same industry.

At the end of the line

Demand for wind power is expected to continue to increase in the long term as governments around the world take steps to shift to renewable energy economies. However, several new entrants are competing for growing market share and TPIC is dependent on a few long-term contracts. In addition, the company has burned cash in recent years. We therefore believe that it is best to avoid TPIC until it can strengthen its cash position and is able to diversify its products and services.

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TPIC shares were trading at $ 50.33 per share on Friday morning, up $ 1.18 (+ 2.40%). Year-to-date, the TPIC has fallen -4.64%, compared to a 4.92% increase in the benchmark S&P 500 over the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in economics in college and has a passion for writing, which led to her career as a research analyst. After…

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