3 Reasons Investors Love Nextracker (NXT)

What a fantastic six months it’s been for Nextracker. Shares of the company have skyrocketed 54.3%, hitting $66.50. This run-up might have investors contemplating their next move.

Is now still a good time to buy NXT? Or are investors being too optimistic? 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 massive 1.2 gigawatt Noor Abu Dhabi solar farm project, Nextracker (NASDAQ:NXT) is a provider of solar tracker systems that help solar panels follow the sun.

1. Surging Backlog Locks In Future Sales

We can better understand Renewable Energy companies by analyzing their backlog. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Nextracker’s future revenue streams.

Nextracker’s backlog punched in at $4.82 billion in the latest quarter, and over the last two years, its year-on-year growth averaged 41.7%. This performance was fantastic and shows the company has a robust sales pipeline because it is accumulating more orders than it can fulfill. Its growth also 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 13.7 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Nextracker’s free cash flow margin for the trailing 12 months was 18.5%.

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 has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Nextracker’s ROIC 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 growth opportunities are expanding.

Final Judgment

These are just a few reasons why we're bullish on Nextracker, and after the recent surge, the stock trades at 17.2× forward P/E (or $66.50 per share). Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.

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