2020 will go down in history as the year of the COVID-19 pandemic. For investors, 2020 was also the year of growth stocks. Like investor favorites Tesla, Zooming, The trade desk, square, Fast, Zscaler, and Virgo Galactic all knocked the market down with little to no profits. Most of these companies are actually losing money, but it is their potential for future gains that has led investors to keep rising their stock prices.
With this in mind, the IPO last week of Airbnb was hot. The stock more than doubled on its market debut. Despite ongoing losses, it is an industry leader with a bright future. Airbnb might be worth the investment, but don’t forget that a solar stock went public in October: Array technologies (NASDAQ: ARRY). Here’s why it could be a better buy now.
An established company
Founded in 1989, Array Technologies is not a speculative, unproven solar company. Over the years the company has grown to become one of the world’s largest manufacturers of software and control systems for utility-scale solar projects.
Array’s shares were traded on the Nasdaq on October 15th. After closing nearly 25% higher on the first day of trading, the shares settled around 6% higher than their IPO price. This is a compelling entry point for first time investors looking at the stock.
Unlike other major IPOs recently, Array Technologies is actually making a profit. For the nine month period ended September 30, Array had revenues of $ 692 million and adjusted EBITDA of $ 140 million. Compared to the same period of the previous year, sales increased by 64% and adjusted EBITDA by 96%.
A leading product
Array leads the market for single axis tracking systems for ground based modules. The systems increase the production of solar panels by up to 25% by setting the modules to track the sun from east to west throughout the day. The tracker package consists of steel girders, electric motors, gearboxes, electronic controls and software, which Array says will provide customers with lower energy costs (LCOE). Solar production is a pure efficiency game. The additional electricity generated by optimizing the performance of a solar module with the help of a tracker must be cheaper than the electricity that could be generated by building additional modules. Array’s tracker is in the sweet spot of this equation.
The single-axis model of the array competes with dual-axis trackers that rotate from side to side and up and down. However, it has been found that the single-axis model produces a superior ROI on a commercial scale. Array says more than 25% of US solar panels in operation are using its product. Array has approximately 10 years left on its core product patent and more than 10 years on other patents.
Array Technologies is focused on growing its US business, expanding internationally, and acquiring companies as it sees fit. Internationally, Array is pursuing projects in Europe, South America, China and Australia. The company expanded its global footprint (projects, business development, technical resources, supply chain functions, etc.) by more than 50% in the first nine months of 2020. For the quarter, international sales made up 10% of total sales, the other 90% are from the US It’s important to keep in mind that Array is largely a US company and is relatively new to international expansion. Overall sales growth and a changing sales mix, including a higher international share, mean overseas customers are appreciating Array’s products. This would allow Array to participate in countries that may have even better solar prospects than US growth. International would also diversify its business so that it does not depend on one country’s market.
In making acquisitions, Array intends to grow sales by increasing exposure to other aspects of the solar system – especially those that complement its core business. CEO Jim Fusaro recently said in a conference call with analysts:
Outside of control panels, inverters, and mounting systems, our customers purchase up to $ 0.13 per watt for other products and components, many of which work directly with or complement our tracker. Acquiring companies that make these products can significantly increase our margins as we can avoid duplicating distribution costs as, in most cases, we would sell more products to the same customers we already have relationships with.
Array declined to provide specific details about the ancillary products and components it would target, but it is clear that the company is focusing more on strengthening its industry-leading tracker position – rather than on areas outside of its core competencies.
Another growth area are purchase agreements with construction and design companies. These contracts often guarantee Array high sales and provide stable and reliable sources of income. At the end of November, Array signed a 1 GW purchase agreement with RP Construction Services (RPCS) for the DuraTrack HZ v3 flagship – Array. Array and RPCS have a long-standing mutually beneficial relationship, with Array manufacturing and supplying the products and RPCS managing and executing most aspects of a given project. This is a win-win situation as Array gets a reliable buyer and can offer RPCS for more projects. By proficiently installing and managing the array system that RPCS regards as the market leader, RPCS wins more orders. The CEO of RPCS noted that the company has more than tripled its size in three years, partly because it uses Array products. Array’s growth will depend in part on how its product holds up against the competition in global competition. The more contracts that can be signed with distributors and project development companies like RPCS, the better. You should also talk about how it’s expanding in the US and internationally. How much can it grow So that you can look forward to investors and not just back.
Lots of room to grow
Rather than speculating on Airbnb’s path to profitability, Array Technologies is offering you profits, a plan to grow its business, and a deal that will benefit from many tailwinds from other leading solar stocks. With a market capitalization of just $ 4.6 billion, Array is one of the smallest IPOs of 2020. Array’s largest competitor, NEXTracker, is owned by its parent company To bendHence, it is a little difficult to compare the ratings. However, the focus of Array’s guidance is for full year revenue of $ 855 million and adjusted EBITDA of $ 158 million for full year 2020. This means that Array is currently growing faster than any US-based public solar company of its size.
Although Array has been around as a company for over 30 years, it has only been audited by Wall Street for a few months – meaning it could withstand short-term volatility. Investors can stay away from the noise of Wall Street by following Array’s quarterly earnings calls and SEC filings to better understand the company’s short-term performance and how it fits into the long-term thesis of being an internationally recognized leader in the field of solar tracking. In addition to revenue and earnings growth, special attention should be paid to Array’s gross margins and business partnerships. A growing gross margin means the company will maintain profitability as it expands. If Array is to be successful in its international expansion, it must sign contracts with companies like RPCS. Keep an eye out for similar deals as well as acquisitions that can improve profitability. You can use these results to assess whether the company can meet and exceed its long-term goals.