March took investors in TPI Composites (NASDAQ:TPIC) on a stomach-churning roller coaster ride, with shares of the wind-blade manufacturer dropping like a rock in the first week of the month and losing nearly 21% in value. The stock quickly reversed course, though, and eventually ended March with 18.4% gains, according to data provided by S&P Global Market Intelligence. Here’s what happened.
TPI’s big initial drop in March was a ripple effect of the company’s earnings release in late February. Fourth-quarter numbers were strong, but its decelerating sales growth didn’t sit well with the market. So despite the company’s profit of $5.2 million on 10% sales growth — versus a loss of $900,000 in the year-ago quarter — TPI stock crashed by double digits right after earnings for a couple of reasons.
First, its fourth-quarter sales growth paled in comparison to third-quarter growth of 23.5%. Second, the company projected sales to grow only around 8% in 2021 at the midpoint of its guidance range after delivering 16% growth in sales in 2020.
During TPI’s fourth-quarter earnings conference call, management also warned about lower utilization in several regions because of overcapacity at some customers. Utilization reflects the numbers of blades TPI invoices as a percentage of total production capacity during a period, and is therefore an important metric to gauge potential revenue. The company also removed five production lines in China during the quarter and gave a muted outlook for the region for 2021.
Those are valid concerns, but investors soon realized they are near-term hiccups and that the big sell-off in TPI shares was unwarranted given the strong long-term growth story for renewable energy. Also, as my Motley Fool colleague Daniel Foelber pointed out in his bull thesis for TPI, the company’s cash flows should rise as it tapers capital expenditure after having spent millions in recent years to expand its global footprint.
President Joe Biden’s signing of the coronavirus relief bill in the second week of March further fueled investor interest in renewable energy stocks as expectations of an infrastructure and clean energy bill from the Biden administration hit a new high.
Biden has unveiled a detailed $2 trillion infrastructure plan, which contains proposals to invest billions into clean energy, including offshore wind energy projects. As a leading player in wind energy, TPI Composites could be a big beneficiary; and that’s the biggest reason the stock shot up in March and has maintained its momentum through April, as of this writing.
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