American Superconductor Corporation (AMSC) is a leading provider of megawatt-scale power resiliency solutions for the electrical grid and critical naval systems. reported revenue ahead of Wall Street’s expectations in Q3 CY2024, with sales up 60.2% year on year to $54.47 million. Guidance for next quarter’s revenue was also optimistic at $57.5 million at the midpoint, 2.6% above analysts’ estimates. Its GAAP profit of $0.13 per share was also 2,049% above analysts’ consensus estimates.

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"AMSC delivered fiscal second quarter net income of nearly $5 million and grew revenue by 60% when compared to the same period last year,” said Daniel P. McGahn, Chairman, President and CEO, AMSC.

Company Overview

Founded in 1987, American Superconductor (NASDAQ:AMSC) has shifted from superconductor research to developing power systems, adapting to changing energy grid needs and naval technology requirements.

Renewable Energy

Renewable energy companies are buoyed by the secular trend of green energy that is upending traditional power generation. Those who innovate and evolve with this dynamic market can win share while those who continue to rely on legacy technologies can see diminishing demand, which includes headwinds from increasing regulation against “dirty” energy. Additionally, these companies are at the whim of economic cycles, as interest rates can impact the willingness to invest in renewable energy projects.

Sales Growth

A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, American Superconductor grew its sales at an incredible 25.5% compounded annual growth rate. This is a great starting point for our analysis because it shows American Superconductor’s offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. American Superconductor’s annualized revenue growth of 29.2% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated. American Superconductor’s recent history shows it’s one of the better Renewable Energy businesses as many of its peers faced declining sales because of cyclical headwinds.

This quarter, American Superconductor reported magnificent year-on-year revenue growth of 60.2%, and its $54.47 million of revenue beat Wall Street’s estimates by 6.1%. Management is currently guiding for a 46.1% year-on-year increase next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 31.3% over the next 12 months, an improvement versus the last two years. This projection is commendable and indicates the market thinks its newer products and services will spur faster growth.

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Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling them, and, most importantly, keeping them relevant through research and development.

American Superconductor’s high expenses have contributed to an average operating margin of negative 16.8% over the last five years. Unprofitable industrials companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

On the plus side, American Superconductor’s annual operating margin rose by 23.9 percentage points over the last five years, as its sales growth gave it operating leverage. Still, it will take much more for the company to reach long-term profitability.

American Superconductor’s operating margin was negative 1.4% this quarter. The company's lack of profits raise a flag.

Earnings Per Share

Analyzing revenue trends tells us about a company’s historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for American Superconductor, its EPS declined by 18.3% annually over the last five years while its revenue grew by 25.5%. However, its operating margin actually expanded during this timeframe, telling us that non-fundamental factors affected its ultimate earnings.

We can take a deeper look into American Superconductor’s earnings to better understand the drivers of its performance. A five-year view shows American Superconductor has diluted its shareholders, growing its share count by 81%. This dilution overshadowed its increased operating efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

In Q3, American Superconductor reported EPS at $0.13, up from negative $0.09 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast American Superconductor’s full-year EPS of negative $0.05 will reach break even.

Key Takeaways from American Superconductor’s Q3 Results

We were impressed by how significantly American Superconductor blew past analysts’ revenue, EBITDA, and EPS expectations this quarter. We were also excited its revenue guidance for next quarter topped Wall Street’s estimates. Zooming out, we think this was a good quarter with some key areas of upside. The stock traded up 6.3% to $25 immediately after reporting.

Sure, American Superconductor had a solid quarter, but if we look at the bigger picture, is this stock a buy? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.