TPI Composites Inc (NASDAQ:TPIC) is a Scottsdale, Arizona-based structural composites supplier and original equipment manufacturer (OEM) partner. It specializes in composite wind blades and transportation, while also servicing other industrial applications.
Its products are bought by OEMs, which means a steady revenue stream that has investors asking is TPI Composites stock a Buy?
The company more than tripled its market value during the COVID-19 pandemic. Wind power is a growing business, and the company has long-term supply agreements in place to generate predictable revenue. It also overcame production issues to meet its order deadlines.
In the U.S. alone, 6,309 MW of new wind capacity was added in the first nine months of 2020. The country has over 60,000 turbines across 41 states, Guam, and Puerto Rico. It plans to increase that moving forward, and TPI’s contracts could be worth $5.1 billion over the next four years.
Will TPI Composites continue generating returns for investors or come back around into a deeper bear market?
TPI Composites Partners With Top Brass Companies
TPIC is a structural composite supplier working with major wind power companies like General Electric, Vestas, and Siemens Gamesa. It originally was founded in 1968 as a manufacturer of high-performance power and sailboats.
It pivoted into wind turbines in 2001 after discovering they had the manufacturing capabilities. It soon leaned on that business to generate growing revenues. The company accounted for nearly one fifth of all onshore wind blades sold in 2019.
The company has 55 manufacturing lines servicing its clients, as it extended supply agreements with GE, Nordex, and Vestas. It’s a sign that outsourcing blades is more efficient for wind power companies, and that’s good news for investors seeking a long-term investment opportunity.
On top of its domestic facilities, the company has a global footprint, with manufacturing capabilities in China, India, Europe, and Mexico. Its lightweight solutions are becoming more commonplace in vehicles too.
Its composite materials are lighter and stronger than traditional metals used in traditional manufacturing. This means vehicles are lighter and get better fuel efficiency, and the company can pivot into more revenue streams to provide investor returns.
However, skeptics warn that the company could have peaked already.
Is TPI Composites Stock A Buy?
TPI Composites kicked off the year with a valuation north of $2.2 billion. The company’s net sales for its third quarter earnings report showed $474 million, a 23.5 percent year-over-year increase from the same quarter in 2019.
It also earned $42.4 million in the quarter, up from a loss of $4.6 million in the prior year’s third quarter.
Free cash flow for the period was $49.5 million.
It held net debt of $89.3 million at the end of 2020, compared to $149 million in total liquidity. This gives it a mostly positive outlook, although it does need to work on paying that debt down. Debt can take away from potential investor gains.
Management provided guidance of approximately $1.65 billion in net sales and $95 million adjusted EBITDA for the year.
Some investors worry its long-term contracts are already priced into the company’s vauation, leaving little room for potential growth. This brings to mind possible pitfalls inherent to investing in TPI Composites.
TPI Composites Cracks In The Armor?
Not long ago TPI Composites received a $150,000 fine from the Occupational Safety and Health Administration (OSHA). Its working conditions were found to be hazardous, as workers developed skin sores and rashes working with its epoxy resin.
Even with Tyvek 400 suits, the resin leaked through, and suites needed to be replaced with fully tested and researched versions.
This put additional safety procedures in place that only got accentuated with social distancing needs during the pandemic. And it exposes the company to civil lawsuits that could further drain its profits.
And it needs its China, Mexico, and Turkey business to continue growing. It spent a lot of money over the past two years building these facilities, and that held TPIC share price down for several years. Each new plant and product line it introduces has associated costs that take a long time to recoup.
It also faces growing competitive threats.
TPI Composites Has Well Capitalized Competitors
Although many wind companies are outsourcing their wind turbine manufacturing, some keep it (or at least a portion) in-house. This puts TPI Composites (TPIC) in competition with its own client base, including Siemens Gamesa, Vestas (VWDRY), and GE (GE).
Companies like LM Wind Power, Hexcel, Enercon, and Goldwind also have a stake in the industry.
TPI Composites must continue working with car manufacturers and wind companies to stay involved in their supply chains. It has limited ability to raise prices, or it could risk losing the business entirely. That puts the company in a precarious position.
And the U.S. didn’t perform well in trade negotiations in the back half of the 2010s. Its exposure in China could even further complicate the company’s revenue streams moving forward.
Still, its long-term contracts guarantee at least $5 billion in revenue coming. It has until 2024 to figure things out.
Is TPI Composites Stock A Buy? The Bottom Line
TPI Composites is an American manufacturer with a global footprint. It creates composite components for wind turbines, transportation, and industrial uses, and it spent heavily in the 2010s expanding around the world.
The company works directly with OEMs on long-term supplier agreements, and it’s sitting on about $5 billion in orders through 2024.
It still must find ways to continue growing and diversifying revenue streams. A U.S.-China trade war and limited growth potential could otherwise stop this company in its tracks.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.