Westport Innovations Inc. is promising that 2014 will be a "critical breakthrough year" for its natural-gas engine technology, but investors remain skeptical after watching its stock slide into reverse.
The value of the Vancouver-based company's shares has been cut in half over the past 12 months as it ramps up spending on its technology and reports earnings below analyst expectations.
Natural gas prices have also been moving higher, which the company claims could be behind its sinking stock price.
Westport expects its earnings will be back in the black by the end of 2015, driven by stronger sales of new and existing products, and lower expenses.
While some investors are believers in the strategy, given rising demand for lower-emission vehicle technology, others worry the crucial North American market isn't adopting the technology as quickly as expected. Competition in the space is also increasing.
"There are a lot of interesting opportunities in the future, but for investors looking at the stock today, those opportunities might be too far down the road to really give them comfort in the stock at this point," said National Bank Financial analyst Rupert Merer, who has a "sell" on Westport.
Raymond James analyst Pavel Molchanov said the company has missed revenue expectations in recent quarters, which has been a drag on the shares.
"There has been an overpromise, underdeliver problem," Mr. Molchanov said.
He is one of eight analysts with a "hold" on the stock, while seven say "buy" and two say "sell," two have a "sell" rating, according to S&P Capital IQ.
While Mr. Molchanov thinks management is doing what it can, "the fact of the matter is that this market isn't growing as rapidly in North America as expected."
About 42 per cent of Westport's revenues are derived from North and South America, 11 per cent from Asia and the remaining 47 per cent from elsewhere – mostly Europe.
In a recent conference call with analysts, Westport founder and chief executive David Demers called 2014 "the critical breakthrough year in heavy-duty trucks in North America."
The company is counting on its new technologies to help fuel growth among vehicle manufacturers.
It also has existing joint ventures to make truck and bus engines with U.S.-based Cummins Inc. and China-based companies Weichai Holding Group Co. Ltd. and Hong Kong Peterson (CNG) Equipment Ltd. Westport is also looking at expanding into the marine, rail and heavy equipment industries.
Still, the stock has fallen by about 67 per cent since it was trading a little less than $50 two years ago on both the Nasdaq and Toronto Stock Exchange. It's down about 32 per cent so far this year, which is consistent with the performance of peers such as Fuel Systems Solutions Inc., Clean Energy Fuels Corp. and, to a lesser extent, Power Solutions International Inc.
"It's frustrating," Westport chief financial officer Bill Larkin said, citing a correlation between the stock's drop and higher natural gas prices. Investors could see rising prices as a deterrent for companies considering purchasing natural-gas engines, even though some argue the economics still make sense long-term.
"We've spent a lot of time trying to understand the decline in the stock price because I think we've been very clear on our strategy and are executing our strategy," Mr. Larkin said.
Canaccord Genuity analyst John Quealy said Westport is in the "adolescence" stage and has a "hold" on the stock until its financial situation improves.
"Very few companies have been able to commercialize and achieve success in clean technology and this is one of them. Investors are just waiting for another pivot point," said Mr. Quealy.
Robert Brown, an analyst with Lake Street Capital Markets, has a "buy" on the stock, believing Westport is poised to increase its penetration into the growing market for natural-gas engines.
"Westport is in a strong position to benefit," he said.