Solar Tech-Services; Nextracker Should Be On Your Radar

Key Points

• Nextracker is a high-demand IPO with a booming business. 
• It is controlled by Flex Ltd. which owns a controlling interest. 
• Price action is supported but a top may already be in place. 

Nextracker NASDAQ: NXT IPOd only a few weeks ago but is already building momentum for a sustained rally. The company provides equipment, software, and services for the solar industry and is a high-demand business. Nextracker doesn’t make solar panels; it makes the equipment the solar panels are attached to, designed to hug the terrain, track the sun's angle, and maximize the efficiency of solar arrays.

Regarding the IPO, the stock was expected to price 23.3 million shares at a high of $24 but ended up selling 26.6 million for $24. That’s worth $638 million which is not a large figure for Wall Street or the tech industry but may have left plenty of meat on the bone. 

The share price surged 35% on the first day of trading and has increased since. The analysts have also begun to speak out; Marketbeat is tracking 13 major analyst firms, and the chatter is overwhelmingly bullish. The consensus for the stock is a Moderate Buy verging on Firm Buy with a price target of $40 or 18% above the current action. Assuming the company can follow through on its promise, the consensus should trend higher and lead the stock higher. 

What Investors Should Know About Nextracker 

Nextracker is a spin-off of Flex Ltd NASDAQ: FLEX. Flex Ltd. is a cross-industry technology provider operating in 3 segments, including Nextracker. Flex Ltd. retains a controlling interest in Nextracker and Nextracker is reinvesting the IPO proceeds into another Flex subsidiary. This transaction will create a tax-efficient entity with Nextracker as the holding company. 

From the company’s S-1A

“We will be a holding company and upon the completion of this offering, our principal asset will consist of LLC Common Units that we acquire from a subsidiary of Flex Ltd. with the proceeds from this offering and common units issued to us in connection with the merger of certain blocker corporations, representing 26.75% of the total economic interest in the LLC (as defined herein) (or 29.17% if the underwriters exercise in full their option to purchase additional shares of Class A common stock).

The remaining economic interest in the LLC will be owned by subsidiaries of Flex Ltd. and TPG Rise Flash, L.P. through their ownership of LLC Common Units.”

How Good Is The Solar Tracking Business? 

It’s pretty good. The solar tracking business is expected to double the pace of growth over the next 5 years and drive this industry-leading company to over $2 billion in annual revenues by 2025. The company reported $.870 billion in revenue for the 6-months preceding the IPO, with firm orders of $2.1 billion. The orders figure is up from $1.3 billion, $1.1 billion, and $0.7 billion in the 3 preceding fiscal years. Looking forward, the IEA forecasts solar to account for 70% or more of total new electric capacity over the next 4 years; that is a significant tailwind to this well-positioned business 

The chart is not without risks. The market for this stock appears to have a firm floor at the IPO price, it has bounced and retested and moved higher since the IPO, but there is also resistance. The stock shows a potential top at the $34.50, which could cap gains until the 1st earnings report is released. That report is due at any time. Until then, investors should use caution with this stock and not chase the price action higher.