In 2018, I wrote several articles on Westport Fuel Systems (WPRT) starting on March 8 when the price of the shares was trading at around the $2.75 level. WPRT jumped to a high at $3.77 in late August, but it has been all downhill since then.
WPRT traded to a low at 82 cents per share in 2017, and the price moved higher on the back of optimism over joint ventures and investments by high-profile companies. The rise in the price of oil in 2017 and through most of 2018 did not hurt the share price which remained above $3 until last October as WPRT makes engines that run on alternative fuels. However, selling in the stock market, and a collapse in the price of crude oil took the shares below $2 in December, and as of February 11, the shares looked like they were on their way back for a test of the 2017 low. WPRT stock closed on February 11 at $1.30 per share, and the latest move through the $1.50 level came on heavy volume which is never a good sign for a stock. WPRT reached a low at $1.17 last week before it recovered a bit at the beginning of this week.
Timing was everything for WPRT in 2017 and 2018
After trading at dizzying heights of $50.19 per share in 2012 when the market assigned a massive premium on the company that promised to deliver engines that would protect the environment, the shares fell to penny stock territory in 2017. Disappointment in earnings and failure to deliver in earnings reports left many investors holding shares in the company that became little more than dust collectors in their portfolios.
As the chart highlights, WPRT fell to a bottom at 82 cents per shares in March 2017 when the stock caught the eyes of a new set of investors who were willing to bet on a recovery.
Nine months later, at the start of 2018, the WPRT shares had recovered to a high at $4.33. After a round of profit taking that took the shares to a low at $2.10 last March, the shares took off to the upside once again reaching a peak at $3.77 in August. All that WPRT could manage was a lower high as the stock turned south once again on its way to its current price at $1.30 per share on Monday, February 11.
Timing was everything when it came to long positions in WPRT stock in 2017 and 2018. A short to medium-term approach to trading the shares led to exciting profits on a percentage basis but holding the shares has been a disaster as it is now trading back at its lowest level since 2017.
Lots of joint ventures but earnings have yet to materialize
WPRT is a company that offers lots of promise. The company’s profile states:
Westport Fuel Systems Inc. engineers, manufactures, and supplies alternative fuel systems and components for the transportation and industrial markets worldwide. It operates through Transportation and Cummins Westport Inc. Joint Venture segments. The company designs, manufactures, and sells compressed natural gas (CNG) and liquid petroleum gas (LPG) components and systems, such as pressure regulators, injectors, electronic control units, valves, and filters, as well as bi-fuel, mono-fuel, and dual-fuel LPG and CNG conversion kits for passenger cars, light-duty trucks, and medium-duty vehicles, including original engine manufacture (OEM), delayed OEM, and aftermarket segments. It also designs, manufactures, and sells a range of CNG compressors and refueling systems for individuals or small fleets; and LPG injection and natural gas fuel systems, and CNG and LPG systems. In addition, the company offers Westport HPDI 2.0, a complete fully-OEM-integrated system that enables heavy-duty trucks to operate on natural gas; high efficiency spark ignited natural gas system; cryogenic tank and pump products; and cryogenic pumps used in mining, rail, marine, and oil and gas applications. Further, the company offers natural gas or propane engines for transit, school, and shuttle buses; conventional trucks and tractors; refuse collection trucks; and specialty vehicles, such as short-haul port drayage trucks and street sweepers. Westport Fuel Systems Inc. markets its products primarily under the BRC, Prins, Zavoli, OMVL, TA Gas Technology, Valtek, Emer, and CUBOGAS brands. The company was formerly known as Westport Innovations Inc. and changed its name to Westport Fuel Systems Inc. in June 2016. The company was founded in 1995 and is headquartered in Vancouver, Canada.
The joint venture with Cummins Inc. (CMI) was a particular draw for investors who flocked to WPRT. There is something about a company with a great story, a relationship with a high-profile and profitable partner, and a very low share price that is highly addicting for less sophisticated investors. When I was a young trader learning the ropes, my mentor at Philipp Brothers Sid Gold who taught me the ropes when it came to options trading, called investments like WPRT “trading sardines.” The term comes from an old story about traders at a fish market who were buying and selling sardines where one trader told the other, “these are not eating sardines, these are trading sardines.” In other words, they are not suitable for digestion but quite suitable for making money.
The price history of WPRT suggests that the stock is a trading sardine and at times it can offer traders the opportunity to double or triple their investment. However, holding onto the shares with the hope of a return to the prices seen in 2012 is a lower than low odds play. WPRT is a company that stands as an example of why stops are a necessary evil in markets.
A new CEO and a senior departure cause the shares to drop
On January 15, WPRT announced that David S. Johnson became the CEO replacing Nancy S. Gougarty who decided to retire. Mr. Johnson has an impressive resume having served as CEO of Achates Power for ten years after stints at Navistar, Ford, and General Motors.
WPRT shares were already under pressure when the company announced the new CEO would be taking over at the helm of the company. WPRT stock closed at $1.67 on January 14, and on the next day it fell to a low at $1.44 per share and closed near the low.
The next nail in the stock’s coffin came on February 4 when it announced that Michael Willis resigned from his position as the company’s Chief Financial Officer.
A bearish environment
The current state of the energy sector is not ideal for WPRT shares. Crude oil fell from $76.90 in early October to a low at $42.36 per barrel on the nearby NYMEX futures contract on December 24. As of Tuesday, February 12 the energy commodity was trading at $53.78 per barrel. The price of natural gas exploded higher reaching almost $5 per MMBtu in mid-November, but the price of the March futures contract was trading back down at $2.69 on February 12. Critical technical support for natural gas is at the 2018 low at $2.53 as the spring season is approaching fast. Many energy stocks have moved appreciably lower since last October, but WPRT is not as much an energy stock as it is a “trading sardine.” Trading sardines tend to follow technical rather than fundamental clues in the market.
Is it time to buy again?
The loss of two key executives in less than one month sent the shares to a low at $1.17 on February 5, and the stock returned to that low on February 7 setting up the potential of a double bottom in WPRT shares.
A highly speculative approach to this company would be to buy the shares around the current price with a stop below the $1.17 level. I would use a $1.09 per share stop as it is likely that price decline to that level will lead to a test of the 2017 bottom or worse.
As the daily chart shows, the recent double bottom pattern could create a short-term opportunity in WPRT stock. With the price at $1.30, a stop at $1.09 is a risk of 11 cents. If WPRT shares manage to recover to just under the 2019 high at $1.80, that target creates a reward-risk ratio of better than 4.5:1. However, if the shares get to that level, take the profit because the risk of it becoming a dust collector in your portfolio are not small.
WPRT is a trading sardine, but it could offer the opportunity for a quick strike profit over the coming weeks with a minimal amount of risk.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis.