Capstone Turbine Corporation (CPST) Needs a Montage

Capstone has also gone to great lengths to foster better relationships with one of its best customers: remote oil and gas drilling operations. Since the company’s turbines are able to consume several different types of fuel, they can be very handy for powering drilling operations that are off the grid. In the past two years, oil and gas exploration has gone from 25% of sales to more than 66% for the company.

Not only are these products selling in the U.S., but shale gas plays around the world are also taking notice of the benefits that these generators can provide. Today, Capstone sells its products in multiple countries in South America, Europe, and Asia. With oil and gas exploration still growing at a rapid pace in the U.S. and abroad, it’s likely that Capstone could find a very strong demand for its products from this customer base.

Here I am, not rocked by the hurricane
Hurricane Sandy, which caused billions of dollars in damage in New York and New Jersey, was quite possibly the greatest unintentional advertising campaign Capstone could have ever asked for. All but one of its turbines remained fully operational throughout the storm. With more recent storms in the Northeast causing several hundred thousand power outages, it’s likely that people will look to other forms of power generation for their electricity. And in the wake of Sandy, the New York State Energy Research and Development Authority just announced a multimillion-dollar initiative to encourage the use of co-generation systems. Several of Capstone’s products fit the criteria for the initiative, so it’s possible that Capstone could see a large boost in critical power systems sales thanks to this initiative.

What a Fool believes
There are still a lot of ifs in the Capstone story before the company will see profitability: if Capstone can continue to court off-grid oil and gas operations, if it can keep up its cost reduction plans to increase margins, if it can build out a stronger distribution network and warranty service. A lot of pieces need to fall into place.

That’s not to say it’s impossible, though. The momentum, albeit slow, is on Capstone’s side. It’s probably going to take longer than a montage to get there, so investors who have hung on for the ride will need to hold tight for a bit longer before they see any profits from this company.

The article Capstone Turbine Needs a Montage originally appeared on Fool.com and is written by Tyler Crowe.

Fool contributor Tyler Crowe has no position in any stocks mentioned.  You can follow him on Fool.com under TMFDirtyBird, Google +, or Twitter: @TylerCroweFool.The Motley Fool owns shares of General Electric.

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