Nextracker: The sun is rising for this solar stock

Solar stocks struggled in 2023 and early 2024 due to sluggish demand and a deteriorating outlook for growth, but Nextracker Inc. NASDAQ: NXT is not your run-of-the-mill solar stock. 

While most focus on solar panels, inverters, storage and power generation, Nextracker focuses on what counts: getting the most of the technology available today. Its solar-panel-mounting and sun-tracking systems keep panels finely tuned to the sun's movement, allowing maximum power generation and efficiency. 

If you doubt the company's utility and value to the solar industry, you have only to look at the FQ3/CQ4 results, which have the stock up 25% in pre-market trading. A 25% gain is significant, but more so in this case. Analysts have been unwavering in supporting the company since its IPO and have lifted the consensus target by 10% in three months. The post-release action has the market above consensus and near the range's high-end, but the trend in sentiment should continue now that guidance has set. 

Nextracker blows past robust forecasts for Q4

Nextracker had a robust quarter, displaying clear momentum and accelerating growth. The company reported $710.43 million in revenue for a gain of 38% YOY that outpaced the consensus by 1500 basis points. 

Gains occurred in all geographic regions, including Africa, which crossed a significant threshold in December. More importantly, the revenue gains are driving leverage on the bottom line. The company's GAAP and adjusted margins came in well above consensus, GAAP holding steady compared to last year, to leave the GAAP net income and EPS up 38% and the adjusted by 30%. 

The news that has the stock price up by 25% is the guidance. The guidance confirms the company has growing momentum with backlogs at record levels globally, and the FY outlook increased for the third consecutive quarter. This quarter, management threw caution to the wind and substantially upped the low and high end of the range. 

The new low end for revenue is now $2.45 billion, up 16% from the initial target and above the last set high-end of $2.4 billion. The company also expected significant margin strength, calling for a 30% gain in adjusted EBITDA and no end to the company's growth in sight. Other solar-tracking platforms exist, but Nextracker is the leading solar technology player due to its effectiveness, ease of use, and reliability. 

Nextracker: Well-capitalized and on track to build value

Nextracker's business has produced solid cash flow and free cash flow year-to-date and is helping to build shareholder value. The company continues to run a shareholder deficit but is on track to amend the situation soon. The company's balance sheet is well-capitalized and getting stronger each quarter with the cash balance building, receivables and inventory up and assets growing with only a slight increase in total liabilities.

Analysts favor the stock and have been leading it higher all year. Marketbeat.com tracks 23 analysts rating the stock a consensus "moderate buy" with the number of analysts covering the consensus price target trending higher. The market overran the consensus target of $49 with the post-release pre-opening pop, but it is still below the high-end and recently set targets near $62. A move to that level is worth about 20% to investors, and upward revisions will likely continue. 

The technical outlook: Nextracker throws a strong signal 

Nextracker threw a strong signal with its post-release pop, but we won't know its message until the session's close. There are three potential outcomes: 

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