TPI Composites (TPIC)

Global wind blade manufacturer TPI Composites (NASDAQ:TPIC) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 12.4% year on year to $336.2 million. The company’s full-year revenue guidance of $1.45 billion at the midpoint came in 2% above analysts’ estimates. Its GAAP loss of $1.01 per share was 62.2% below analysts’ consensus estimates.

Company Overview

Founded in 1968, TPI Composites (NASDAQ:TPIC) manufactures composite wind turbine blades and provides related precision molding and assembly systems.

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.

Competitors in the wind energy sector include Vestas Wind Systems (OTC:VWDRY), Siemens Gamesa Renewable Energy (OTC:GCTAY), and Nordex (OTC:NRDXF)

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, TPI Composites’s demand was weak and its revenue declined by 1.7% per year. This was below our standards and suggests it’s a low quality business.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. TPI Composites’s recent performance shows its demand remained suppressed as its revenue has declined by 9% annually over the last two years. TPI Composites isn’t alone in its struggles as the Renewable Energy industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

This quarter, TPI Composites reported year-on-year revenue growth of 12.4%, and its $336.2 million of revenue exceeded Wall Street’s estimates by 6.9%.

Looking ahead, sell-side analysts expect revenue to grow 5.1% over the next 12 months. Although this projection indicates its newer products and services will fuel better top-line performance, it is still below average for the sector.

Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

TPI Composites has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 2.6% gross margin over the last five years. That means TPI Composites paid its suppliers a lot of money ($97.38 for every $100 in revenue) to run its business.

This quarter, TPI Composites’s gross profit margin was negative 1.7%. The company’s full-year margin was also negative, suggesting it needs to change its business model quickly.

TPI Composites’s high expenses have contributed to an average operating margin of negative 4.9% 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.

Analyzing the trend in its profitability, TPI Composites’s operating margin decreased by 8.6 percentage points over the last five years. TPI Composites’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

TPI Composites’s operating margin was negative 6.8% this quarter. The company's consistent lack of profits raise a flag.

Revenue trends explain a company’s historical growth, but the long-term change in 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.

TPI Composites’s earnings losses deepened over the last five years as its EPS dropped 104% annually. We tend to steer our readers away from companies with falling EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, TPI Composites’s low margin of safety could leave its stock price susceptible to large downswings.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For TPI Composites, its two-year annual EPS declines of 23.7% show it’s still underperforming. These results were bad no matter how you slice the data.

In Q1, TPI Composites reported EPS at negative $1.01, up from negative $1.31 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. Over the next 12 months, Wall Street expects TPI Composites to improve its earnings losses. Analysts forecast its full-year EPS of negative $4.15 will advance to negative $1.70.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

While TPI Composites’s free cash flow broke even this quarter, the broader story hasn’t been so clean. TPI Composites’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 3.6%, meaning it lit $3.60 of cash on fire for every $100 in revenue.

Taking a step back, an encouraging sign is that TPI Composites’s margin expanded by 3.2 percentage points during that time. We have no doubt shareholders would like to continue seeing its cash conversion rise.

TPI Composites broke even from a free cash flow perspective in Q1. This result was good as its margin was 15.3 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

TPI Composites’s five-year average ROIC was negative 45.7%, meaning management lost money while trying to expand the business. Its returns were among the worst in the industrials sector.

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. Unfortunately, TPI Composites’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

TPI Composites posted negative $25.95 million of EBITDA over the last 12 months, and its $736.2 million of debt exceeds the $171.9 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

We implore our readers to tread carefully because credit agencies could downgrade TPI Composites if its unprofitable ways continue, making incremental borrowing more expensive and restricting growth prospects. The company could also be backed into a corner if the market turns unexpectedly. We hope TPI Composites can improve its profitability and remain cautious until then.

We were impressed by how significantly TPI Composites blew past analysts’ revenue expectations this quarter. We were also glad its full-year revenue guidance exceeded Wall Street’s estimates. On the other hand, its EBITDA and EPS missed significantly. Zooming out, we think this was a mixed quarter. Investors were likely hoping for more, and shares traded down 1.9% to $0.96 immediately following the results.

Updated: May 16, 2025 at 11:15 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

TPI Composites doesn’t pass our quality test. First off, its revenue has declined over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

TPI Composites’s EV-to-EBITDA ratio based on the next 12 months is 1x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $1.82 on the company (compared to the current share price of $1.12).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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