Why Capstone Turbine (CPST) is a Buy

Capstone Turbine Corporation has been identified by our DrStoxx.com team as a strong buy for 2017. Capstone develops, manufactures, markets, and services microturbine technology solutions for use in power generation applications worldwide. The company's microturbines are also used as battery charging generators for hybrid electric vehicle applications. In addition, the company provides after-market parts and services, as well as repair and maintenance services. It markets and sells its products primarily through distributors and original equipment manufacturers. Capstone Turbine Corporation was founded in 1988 and is headquartered in Chatsworth, California.

Share price has been extremely hard hit in recent months following a new all-time high above $50 per share back in early 2014. Today shares languish around 0.70, and have been trading under $1 since late October. Given the extreme loss in capital value, shares of Capstone are now extremely undervalued given the structure of the business, the company's recent acquisition of several major new repeating contracts, and the announcement last month of significant cost cutting measures taken by management. Shares trade at a low Price to Book value of 0.74 on a Price to Cash value of only 2.3 and on 0.3x sales revenues. Current revenues are a whopping 3x total market cap. As costs came down, the company reported EPS growth of 28% last year and is expected to grow another 55% this year. This growth includes a huge 60% run last quarter on the strength of those new contracts.

As the chart shows below, shares are currently trading just off of new alltime lows within a bullish falling wedge pattern. The bullish divergence seen in MACD is replicated by other momentum oscillators. All signs are good here that the company has hit the bottom of its slide and should outperform other smallcap stocks in 2017.

Posted to Dr. Stoxx Options Letter on Jan 03, 2017 — 11:01 AM
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