TPI Composites Stock: High Growth and a Booming Global Wind Power Sector Provide Strong Tailwinds

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TPI Composites: Wind Power on a Massive Upward Trend

When President Donald Trump was elected, we began to hear that doom and gloom would beset the green energy sector, and that it was time to buy coal and fossil fuels.

While it may be true that the White House is not in favor of green power, it would be incorrect to write off the segment, since the global growth in harnessing clean energy is massive.

An intriguing small-cap wind power player with above-average upside prospects is TPI Composites Inc (NASDAQ:TPIC). TPI Composites stock began trading at $11.00 in July 2016 and it is outperforming the S&P 500 and the Nasdaq with a 38% advance this year.

TPI Composites Inc has been around for 50 years, and it is the country’s biggest manufacturer of high-quality composite wind blades. The company has operations in North America, Europe, and Asia.

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The wind segment generates around 99% of the TPI’s revenue. The company is aiming to diversify by testing advanced lightweight composite products geared for the transportation market.

For now, tailwinds in the global wind power segment are strong, especially in pollution-ridden countries like China, which accounted for more than a third of the world’s new installed capacity in 2017. (Source: “Top 10 New Installed Capacity Jan-Dec 2017,” Global Wind Energy Council, last accessed August 30, 2018.)

The Global Wind Energy Council (GWEC) estimates a cumulative installed capacity of around 840 gigawatts of wind power by 2022. (Source: “Market Forecast for 2018-2022,” Global Wind Energy Council, last accessed August 30, 2018.)

TPI Composites’ production of top-quality large-scale wind blades gives the company an advantage in the big wind energy turbine market.

The TPIC stock chart below shows the prior breakout and current move to break higher to above $30.00.

Chart courtesy of StockCharts.com

My Bull Case for TPIC Stock

TPI Composites reported higher revenues in four straight years—at double-digit growth—from $215.1 million in 2013 to $930.3 million in 2017, representing an impressive compound annual growth rate (CAGR) of 44.2%.

Fiscal Year Revenue (Millions) Growth
2013 $215.1
2014 $320.8 49.2%
2015 $585.9 82.7%
2016 $754.9 28.9%
2017 $930.3 23.2%

One concern is that the revenue growth rate is slated to moderate to 9.4% (to $1.0 billion). However, TPI Composites is expected to ramp up its revenue by 32.2% to as high as $1.4 billion in 2019. (Source: “TPI Composites, Inc. (TPIC),” Yahoo! Finance, last accessed August 30, 2018.)

A big positive is that TPI Composites makes money and generates positive earnings before interest, taxes, depreciation, and amortization (EBITDA) at a higher growth rate compared to revenues from 2015 to 2017.

Fiscal Year EBITDA (Millions) Growth
2013 $6.0
2014 $13.0 117.2%
2015 $39.0 202.2%
2016 $56.0 43.5%
2017 $94.0 67.9%

Earnings are expected to decline to $0.13 per diluted share in 2018 but rally to $1.87 (or as high as $2.04 per diluted share) in 2019.

Fiscal Year Diluted EPS Growth
2013 -$0.38
2014 -$0.61 -60%
2015 -$0.05 92%
2016 $0.48 1,030%
2017 $1.25 160%

The higher EBITDA and earnings have led to TPI Composites producing positive free cash flow (FCF), which grew at a faster clip than revenues from 2015 to 2017.

Fiscal Year Free Cash Flow (Millions) Growth
2013 -$5.4
2014 -$52.1 -859%
2015 $4.9 109%
2016 $23.3 373%
2017 $37.8 62%

Analyst Take

In my view, TPI Composites stock is a great risk-to-reward situation backed by a much-improving fundamental picture.

Don’t worry about the current uncertainties in the U.S. toward green energy, since the worldwide growth will help offset the risk for TPIC stock.