The last time we wrote about Vancouver’s Westport Innovations the stock was sky high, having climbed roughly 80 per cent in just four months.
Shortly after, the bubble burst.
After peaking in mid-March, Westport plummeted from around $48 per share down to $23 in mid-May, a drop of over 50 per cent in only two months. The stock has since recovered some of its losses, but still remains about 37 per cent off its peak.
A sudden drop like this is rough for investors no matter what company is hit, but it was especially hard for Westport's backers because the company raised cash right near the peak. Back in February, Westport raised $274-million (U.S.) around $43 per share. That means that within a month, buyers were in the red on their investments.
What happened to this manufacturer of natural gas engines for commercial vehicles?
For starters, the higher Westport’s stock climbed, the more that people wondered if it was trading at justified levels. An 80 per cent jump in just a few months simply isn’t common.
Then last quarter Westport announced a $23-million loss, the largest in its history. Though revenues and earnings before interest, taxes, depreciation and amortization grew, things like research and development expenses jumped 60 per cent year-over-year.
And despite 2012 revenue guidance of between $400-million and $425-million, analyst Rupert Merer at National Bank Financial expects a high cash burn until 2013 when sales have a chance of ramping up.
Should they materialize, these gains are expected to come from heavy duty vehicles, and Westport just signed a deal with Volvo to target the North American truck market. Because Westport’s engines run on natural gas, they could be cheaper for clients because natural gas prices are now so low.
But not everyone is buying the story. No doubt, people believe Westport definitely has potential, but its growth rate could be much slower than what the stock price suggests -- even at today’s lower levels.