Over the past six months, Nextracker has fallen to $39.97 per share. Shareholders have lost 13.1% of their capital, which is highly disappointing because the S&P 500 has climbed 11.5%. This may have investors wondering how to approach the situation.
Given the weaker price action, is now a good time to buy NXT? Find out in our full research report, it’s free.
Why Is Nextracker a Good Business?
With its technology playing a key role in the Noor Abu Dabhi project, one of the largest solar farms in the world, Nextracker (NASDAQ:NXT) provides solar tracker systems that help solar panels follow the sun.
1. Skyrocketing Backlog Locks In Future Revenue
We can better understand electrical equipment companies by analyzing their backlog, or the value of outstanding orders that have not yet been executed or delivered.
Nextracker’s backlog reached $4.5 billion in the latest quarter and averaged 59.6% year-on-year growth over the last two years. This shows the company has a robust sales pipeline and suggests that customers are committing to Nextracker for the long term, enhancing the business's predictability.
2. Increasing Free Cash Flow Margin Juices Financials
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Nextracker’s margin expanded by 15.2 percentage points over the last five years. This is encouraging because its free cash flow profitability rose more than its operating profitability, suggesting it’s becoming a less capital-intensive business. Its free cash flow margin for the trailing 12 months was 15.4%.
3. New Investments Bear Fruit as ROIC Jumps
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it raised (debt and equity).
We typically prefer investing in businesses with high returns because it means they have viable business models, but the trend in a company’s ROIC is often what surprises the market and moves the stock price. Fortunately, Nextracker’s has increased significantly over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable business opportunities are expanding.
Final Judgment
These are just a few reasons why we think Nextracker is one of the best industrials companies out there. Following the recent decline, the stock trades at 12.7x forward price-to-earnings (or $39.97 per share). Is now a good time to buy some shares? See for yourself in our in-depth research report, it’s free.
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