Fuel Systems Solutions: Tools for a more fuel-efficient future
When it comes to reducing the world's dependence on fossil fuels, there are abstract theories and then there are practical tools. Fuel Systems Solutions Inc. (Nasdaq:FSYS) falls squarely into the latter category, and as a growing number of car and bus manufacturers discover how its equipment helps vehicles run more efficiently on cleaner sources of fuel, investors are reaping the benefits.
Shares of the Santa Ana, Calif. small cap closed at $31.89 on Monday, up 123% from the start of the year, reflecting both a growing investor interest in all things green as well as Fuel Systems' proven track record of selling and installing gear that turns traditional internal combustion engines into flexible pieces of equipment that can run on cleaner-burning fuels such as natural gas, propane and biogas.
Fuel Systems' last several quarters have outperformed expectations, most recently in its second quarter, when it reported a 50% spike in revenue over the year-ago quarter, which President Matthew Beale said underscored "the rapidly expanding demand for alternatives to petroleum to fuel vehicles."
Fuel Systems' revenue rose to $98.3 million from $65 million in the three months ended June 30, 2008. Net income rose to $4.6 million from $0.3 million in the same time. Four analysts who track this company project net income will shoot up to $1.45 per share in 2008 and $1.82 per share in 2009 from $0.58 per share last year The consensus is for revenues to surge to $365.8 million this year and $427.1 million in 2009 from $265.3 million last year.
John Quealy of Cannacord Adams, who has a $53 price target on the stock, noted in a recent research report that unlike some clean energy stocks, which have risen on hype alone, Fuel Systems has the strong underlying fundamentals to support its valuation. Along with rapid growth in sales and earnings, gross margin in the latest quarter reached 29.1%, well above his forecast 24.3%, Quealy said.
Fuel Systems' stock already surpassed Quealy's target, topping out at $61.24 over the summer before it fell hard in late September and early October along with the rest of the market. Strong fundamentals aside, Quealy warns that this stock is likely to be volatile for some time and that anyone who decides to buy should be prepared for a rough ride, and potentially another sharp pullback.
Longer term, though, he is not worried and investors should not be too concerned either. Given the growing number of vehicle manufacturers and car and bus fleets that are using Fuel Systems' equipment to reduce their carbon footprint, the likely increase in demand from many parts of the world, potential for future regulations on fossil fuels, and current volatility in the stock may provide some good windows of entry.
