Westport Fuel Systems (NASDAQ:WPRT) is a company focused on various alternative energy solutions. WPRT stock and the company’s primary business is in designing and selling engines, along with tanks and other storage systems for liquified natural gas (LNG) and hydrogen-powered vehicles.
As you may imagine, Westport has had a long and bumpy road in terms of trying to commercialize these products. WPRT stock surged to $40 at one point in the early 2010s, up more than a thousand percent from its financial crisis lows. Traders felt optimistic that natural gas-powered engines would have their moment in the sun given high gasoline and diesel prices.
However, that anticipation quickly gave way to grim reality. As petroleum prices plummeted in 2014 and onward, the moment for alternatives ended and WPRT stock lost nearly all of its value. In late 2020 and early 2021, WPRT again soared from $2 up to $12 as part of a broader rush into alternative energy stocks. And, for a moment, Westport had improving business results as well. However, the company has once again lost its charge.
|WPRT||Westport Fuel Systems||$1.57|
Why Has WPRT Stock Dropped?
In 2021, Westport appeared to be turning the corner. There was a lot of momentum building in the alternative energy space, and Westport reported stronger than usual numbers as well on an operating results basis. However, that appears set to reverse course in 2022.
That’s in large part because key partner Cummins (NYSE:CMI) concluded its decade-long partnership with Westport at the end of 2021. Westport had been generating a substantial portion of its revenues and income through that arrangement. Now, however, Cummins will be going it alone. It bought out Westport’s intellectual property associated with that joint venture for $20 million.
That’s not the only issue for Westport. It was also active in the Russian market prior to the recent sanctions. Westport made a clear disclosure about its Russia risk in its most recent earnings release, saying:
“We conduct a substantial portion (10 to 15%) of our LD OEM and IAM businesses in Russia by selling our products to numerous OEMs and other IAM customers. This Russian business has been a growing and important market for gaseous fuel systems and components.”
It shouldn’t destroy Westport’s business outlook to lose that share of its overall revenues. However, it’s clearly a negative development for the firm, especially since Russia had been a growth avenue prior to the sanctions. Throw this in the mix with the Cummins partnership ending and 2022 revenues aren’t likely to look great compared to 2021.
Westport Doesn’t Face Bankruptcy, Has Cash to Survive
Given Westport’s low share price, you might wonder if the company is in financial distress. It’s not, however. As of December 31, 2021, Westport had $125 million of cash on hand. That was up sharply from the end of 2020, when it had $64 million on hand. This is in large part due to receiving a large sum of cash associated with the termination of the Cummins partnership.
Going forward, don’t count on Westport to be able to accumulate more cash anytime soon. In 2021, it generated an operating loss of $31 million. The profitability came from non-operating gains, which are unlikely to be duplicated going forward. And, without the Cummins business and potentially without Russian sales as well, the $31 million operating loss from last year could become significantly larger going forward.
Still, $125 million is quite a supply of cash on hand. Notably, Westport also only had $45 million of long-term debt as of last quarter. So there’s a good deal of balance sheet flexibility.
Westport: Better Than Most Penny Stocks
The majority of stocks trading for a buck or two simply don’t have much shot at success. Penny stocks are a dangerous category of investment most of the time.
So let’s give Westport a lot of credit. This is a far better operation than your average $1.50 stock. There’s a viable business here, some valuable intellectual property, and a solid catalyst for adoption of its technology thanks to the recent surge in diesel prices.
That said, Westport’s execution of its business plan over the years has been spotty. And it’s been challenging to get customers to buy Westport’s products in sufficient scale to reach consistent profitability. With the Cummins partnership ending and little sign of imminent progress on other fronts, don’t expect any big improvements in Westport’s outlook in 2022.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.