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Zacks Rank #1 (Strong Buy) stock Nextracker Inc ((NXT - Free Report) ) specializes in solar tracking solutions for solar power plants. Nextracker’s technology helps solar panels follow the sun’s movement throughout the day, optimizing their angle to maximize energy capture. By continuously adjusting the orientation of solar panels, Nextracker’s system ensures that panels receive the maximum amount of sunlight, increasing the overall efficiency and output of solar power plants. The company’s unique technology helps generate more electricity from solar energy, making it a key player in improving the performance and sustainability of solar energy projects.
Interest Rates are a Headwind for Solar Stocks, but Nextracker Bucks the Trend
Over the past couple of years, the solar industry has been suffering from higher interest rates. Higher interest rates pose challenges for the solar industry due to increased financing costs. Solar projects require substantial upfront investments, and when interest rates rise, borrowing becomes more expensive. The elevated cost of capital can diminish the profitability of solar ventures and thus slow business in the industry to a standstill.
“During a Gold Rush, Sell Shovels”
During the California Gold Rush, some of the most successful ventures were companies such as LeviStrauss ((LEVI - Free Report) ) that didn’t mine for gold but instead supplied gold miners with the supplies they needed. The gold rush example is not a one-off – throughout history, parallel businesses have often benefitted more dramatically than the underlying trend. The same is occurring with NXT. While most solar companies are seeing stagnant earnings, NXT’s unique product energized quarterly EPS by a robust 231% year-over-year. The results are even more impressive when you consider the current backdrop. Just ask yourself, “What will happen to NXT if interest rate cuts occur in 2024 like the market expects?”
Image Source: Zacks Investment Research
A Solution to the Solar Efficiency Problem?
Gross margin is a financial metric representing the difference between a company’s revenue and the direct costs of producing goods or services, expressed as a percentage of revenue. NXT’s gross margin of 41.02% over the trailing twelve months is nearly double that of its subindustry (33.24).
Image Source: Zacks Investment Research
How is NXT able to be so efficient?
· Unique product: You can charge more when you have a unique product.Also, NXT’s business has fewer labor expenses when compared to normal solar companies.
· Solves the efficiency problem: Though worldwide solar usage has increased dramatically in recent years, efficiency remains a significant obstacle for the space. Solar companies can now use Nextracker’s technology to help solar panels stay aligned with the sun for extended periods, optimizing energy production and making solar power more efficient and cost-effective.
New Innovative, Fast-Growing Businesses Attract Institutional Investors
2023 marked the weakest IPO market since 2016. In recent years, fewer IPOs have emerged stateside because private market capital raises are increasing (there is no need to go public in many cases), and the complexity and red tape involved in going public is more difficult than ever.
Image Source: Stockanalysis.com
While the lack of new issues is a net negative for investors, the trend is a positive for a company like NXT. Nextracker gives deep-pocketed institutional investors a means of gaining IPO exposure. Furthermore, unlike most recent IPOs, NXT’s business is far from saturated and is growing like a weed.
Outperformance Despite Weak Solar Backdrop
Even before rates jumped, investors began to discount cuts in the future as stubborn inflation loomed. As a result, the Invesco Solar ETF (TAN), a proxy for the solar industry,cratered from a high of ~$126 in January 2021 to a low of $40 this week.
Image Source: TradingView
However, you wouldn’t know that by looking at a comparison chart of NXT versus the solar industry. NXT shares are up a healthy 83% over the past year, while the Zacks Solar Industry is lower by 52%. If NXT can buck the trend in such a poor solar environment, the stock will likely explode should the solar industry turn around.
Image Source: Zacks Investment Research
Post-Earnings Drift Potential
Post-earnings drift refers to the tendency of a stock’s price to continue moving in the same direction as its initial price change following the release of the company’s earnings report.
Image Source: TradingView
Last Thursday, NXT spiked ~25% on volume four times the average – remember, power and distance are correlated in the stock market.
Bottom Line
Nextracker stands out as a Zacks Rank #1 (Strong Buy) stock specializing in solar tracking solutions for power plants. While the solar industry faces challenges from higher interest rates, Nextracker defies the trend with its unique technology, significantly boosting quarterly earnings.
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Bull of the Day: Nextracker (NXT)
Company Overview
Zacks Rank #1 (Strong Buy) stock Nextracker Inc ((NXT - Free Report) ) specializes in solar tracking solutions for solar power plants. Nextracker’s technology helps solar panels follow the sun’s movement throughout the day, optimizing their angle to maximize energy capture. By continuously adjusting the orientation of solar panels, Nextracker’s system ensures that panels receive the maximum amount of sunlight, increasing the overall efficiency and output of solar power plants. The company’s unique technology helps generate more electricity from solar energy, making it a key player in improving the performance and sustainability of solar energy projects.
Interest Rates are a Headwind for Solar Stocks, but Nextracker Bucks the Trend
Over the past couple of years, the solar industry has been suffering from higher interest rates. Higher interest rates pose challenges for the solar industry due to increased financing costs. Solar projects require substantial upfront investments, and when interest rates rise, borrowing becomes more expensive. The elevated cost of capital can diminish the profitability of solar ventures and thus slow business in the industry to a standstill.
“During a Gold Rush, Sell Shovels”
During the California Gold Rush, some of the most successful ventures were companies such as Levi Strauss ((LEVI - Free Report) ) that didn’t mine for gold but instead supplied gold miners with the supplies they needed. The gold rush example is not a one-off – throughout history, parallel businesses have often benefitted more dramatically than the underlying trend. The same is occurring with NXT. While most solar companies are seeing stagnant earnings, NXT’s unique product energized quarterly EPS by a robust 231% year-over-year. The results are even more impressive when you consider the current backdrop. Just ask yourself, “What will happen to NXT if interest rate cuts occur in 2024 like the market expects?”
Image Source: Zacks Investment Research
A Solution to the Solar Efficiency Problem?
Gross margin is a financial metric representing the difference between a company’s revenue and the direct costs of producing goods or services, expressed as a percentage of revenue. NXT’s gross margin of 41.02% over the trailing twelve months is nearly double that of its subindustry (33.24).
Image Source: Zacks Investment Research
How is NXT able to be so efficient?
· Unique product: You can charge more when you have a unique product.Also, NXT’s business has fewer labor expenses when compared to normal solar companies.
· Solves the efficiency problem: Though worldwide solar usage has increased dramatically in recent years, efficiency remains a significant obstacle for the space. Solar companies can now use Nextracker’s technology to help solar panels stay aligned with the sun for extended periods, optimizing energy production and making solar power more efficient and cost-effective.
New Innovative, Fast-Growing Businesses Attract Institutional Investors
2023 marked the weakest IPO market since 2016. In recent years, fewer IPOs have emerged stateside because private market capital raises are increasing (there is no need to go public in many cases), and the complexity and red tape involved in going public is more difficult than ever.
Image Source: Stockanalysis.com
While the lack of new issues is a net negative for investors, the trend is a positive for a company like NXT. Nextracker gives deep-pocketed institutional investors a means of gaining IPO exposure. Furthermore, unlike most recent IPOs, NXT’s business is far from saturated and is growing like a weed.
Outperformance Despite Weak Solar Backdrop
Even before rates jumped, investors began to discount cuts in the future as stubborn inflation loomed. As a result, the Invesco Solar ETF (TAN), a proxy for the solar industry,cratered from a high of ~$126 in January 2021 to a low of $40 this week.
Image Source: TradingView
However, you wouldn’t know that by looking at a comparison chart of NXT versus the solar industry. NXT shares are up a healthy 83% over the past year, while the Zacks Solar Industry is lower by 52%. If NXT can buck the trend in such a poor solar environment, the stock will likely explode should the solar industry turn around.
Image Source: Zacks Investment Research
Post-Earnings Drift Potential
Post-earnings drift refers to the tendency of a stock’s price to continue moving in the same direction as its initial price change following the release of the company’s earnings report.
Image Source: TradingView
Last Thursday, NXT spiked ~25% on volume four times the average – remember, power and distance are correlated in the stock market.
Bottom Line
Nextracker stands out as a Zacks Rank #1 (Strong Buy) stock specializing in solar tracking solutions for power plants. While the solar industry faces challenges from higher interest rates, Nextracker defies the trend with its unique technology, significantly boosting quarterly earnings.