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

TPIC’s weak fourth quarter stock price performance and the broader market sell-off are primarily responsible for the stocks’ sharp decline from an $81.36 all-time high on February 16. TPIC is currently trading 39.6% below its 52-week high.

Furthermore,  the First Trust Global Wind Energy ETF (FAN), which is focused exclusively on the wind power energy industry, has declined 5.4% over the past three months, which is an indication of investor pessimism regarding the industry.

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

Narrow Focus

TPIC manufactures  and sells composite wind blades and related precision molding and assembly systems to original equipment manufacturers (OEMs). It serves  the transportation industry and the wind farm industry. The  company is primarily 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 of TPIC, in April 2017.  TPIC’s contract with GE ends in 2022, after which its sales have the potential to fall significantly.

Burning Cash

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 year 2020 was negative $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 to $420.25 million.

Poor Profitability

In terms of its trailing-12-month gross profit margin, TPIC’s 6.5% is significantly lower than the industry average 28.6%. Its trailing-12-month levered free cash flow margin is negative compared to the industry average 8.1%. Also,  TPIC’s trailing-12-month return on common equity and trailing-12-month return on total assets are also negative, versus  the industry averages of 8.1% and 3.3%, respectively.

POWR Ratings Reflect Bleak Outlook

TPIC has an overall rating of D, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. TPIC also has a D grade for Quality, in sync with its significantly lower-than-industry profitability ratios.

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

Beyond what we’ve stated above, we have also given TPIC grades for Value, Momentum, Stability and Sentiment. Get all TPIC’s ratings here.

TPIC is ranked #43 of 46 stocks in the Industrial – Manufacturing industry.

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

Bottom Line

The demand for wind energy is expected to continue to increase in the long-term because governments across the globe are taking measures to transition to renewable-energy driven economies. However, several new entrants are vying for share in the growing market and TPIC is  reliant on a few long-term contracts. Furthermore,  the company  has been burning cash over the past few years. So, we think it is  better 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, TPIC has declined -4.64%, versus a 4.92% rise in the benchmark S&P 500 index during 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 has led to her career as a research analyst. More...

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