Nextracker: The sun is rising on this sunny stock

Solar stocks struggled in 2023 and early 2024 amid sluggish demand and worsening growth prospects, but Nextracker Inc. NASDAQ:NXT it’s not your regular solar stock.

While most focus on solar panels, inverters, storage and energy production, Nextracker focuses on what matters: getting the most out of the technology available today. Its solar panel mounting and solar tracking systems keep the panels perfectly tuned to the movement of the sun, allowing for maximum power generation and efficiency.

If you doubt the company’s usefulness and value to the solar industry, just look at the FQ3/CQ4 results, which have the stock up 25% in pre-market trading. A 25% gain is significant, but in this case even more so. Analysts have been unwavering in their support of the company since its IPO and have raised the consensus target 10% in three months. The post-release action took the market above consensus and near the high end of the range, but the sentiment trend should continue now that guidance has been established.

Nextracker beats solid Q4 forecast

Nextracker had a robust quarter, showing clear momentum and accelerating growth. The company reported revenue of $710.43 million, a 38% year-over-year gain, which beat forecasts by 1,500 basis points.

Increases occurred across all geographic regions, including Africa, which crossed a significant threshold in December. More importantly, revenue increases are driving profit leverage. The company’s GAAP and adjusted margins were well above consensus, GAAP remained stable compared to last year, leaving GAAP net income and EPS up 38% and adjusted EPS up 30%.

The news that the stock price increased by 25% is the guide. The guidance confirms that the company has growing momentum with order backlogs at record levels globally, and the fiscal year outlook has increased for the third consecutive quarter. This quarter, management threw caution to the wind and substantially raised the lower and upper bounds of the range.

The new revenue floor is now $2.45 billion, up 16% from the initial target and above the last set high of $2.4 billion. The company also expected significant margin strength, predicting a 30% increase in adjusted EBITDA and no end to the company’s growth in sight. There are other solar tracking platforms, but Nextracker is the major player in solar technology due to its effectiveness, ease of use, and reliability.

Nextracker: Well capitalized and on track to create value

Nextracker’s business has produced solid cash flow and free cash flow year-to-date and is helping to create value for shareholders. The company continues to post an equity deficit, but is on track to turn that around soon. The company’s balance sheet is well capitalized and strengthens each quarter with increasing cash balance, increasing receivables and inventories, and growing assets with only a slight increase in total liabilities.

Analysts favor the stock and have led it higher throughout the year. Marketbeat.com tracks 23 analysts rating the stock a “Moderate Buy” consensus with the number of analysts covering the consensus price target trending higher. The market surpassed the consensus target of $49 with the post-release pre-open pop, but is still below high-end and recently set targets near $62. A move to that level is worth around 20% to investors and upward revisions are likely to continue.

The technical outlook: Nextracker sends a strong signal

Nextracker sent a strong signal with its post-release pop, but we won’t know the message until the session closes. There are three potential outcomes:

1. The market will continue to rise, supported by analyst sentiment and rising price targets.
2. The success is partly due to the 15% short interest; short sellers will reposition themselves and limit the market to its new highs, potentially sending it back to firmer support levels near $50.
3. Consolidation will begin, bringing the market into a trading range at current price levels. In all three cases, this is a solid speculation about the future of solar energy, but one that investors should wait to buy.

Before considering Nextracker, you’ll want to hear this.

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