Nextpower (NXT) is my favourite GARP

Nextpower (NXT) is my favourite GARP Hey guys, just wanted to share my thesis on NXT to gather some opinions/thoughts on what I could be missing. I’ll do so following my usual structure: Crayon test, moat, growth, financial safety, management, valuation. At the end I’ll do a short SWOT and a bull/bear case view. **Crayon test & moat 8/10** Nextpower is a company that primarily makes solar trackers. That’s an easy crayon-test pass for me: solar trackers are the devices that make solar panels follow the sun, kind of like sunflowers. Solar trackers increase the energy yield of solar farms, and around 99% of all new solar farms use solar trackers. NXT is the market leader in trackers, with a widening market share. That’s a pretty strong moat for me. A lot of it is patent-protected as the company has more than 600 patents ([and they care](https://www.businesswire.com/news/home/20260601406054/en/Nextpower-Files-Patent-Lawsuit-Against-GameChange-Solar)). Another thing I like about the business is that it’s a spin-off (Lynch blink). Growth **Growth 8/10** Record backlog of more than $5 billion, with more than $5 billion of executed contracts or purchase orders tied to specific sites, volumes and ship dates. FY2026 revenue reached $3.56 billion, and calculated TTM free cash flow through Q1 2027 was $550.72 million. The company has grown revenue at 27% CAGR over the past seven years, which slowed down to 20% last year. Anyways, bottom line is growing faster than top line (net profit 5x vs revenues 3x in 6 years) My favourite part of the growth story is that NXT is also expanding beyond trackers into foundations, steel, electrical equipment, inspection, training, power conversion and storage. The idea is to be able to bundle more equipment into each project, including battery storage, power-conversion products and eBOS. If this works, NXT can increase its revenue per project. Also, I really like the idea of acquiring small companies that do something complementary to your main product. Meaning, those small acquired companies immediately have far more potential clients at their doorstep. I do understand that there is a ton of execution risks here, but the size and timing of the acquisitions tells me management is not YOLOing their way into this and are following a cautious approach. **Financial safety 9/10** This is my favourite balance sheet of any US company. 1.2 billions $ of cash, zero debt, quick ratio 2.5. The one risk that they mention from the filings is concentration, because losing any of the 5 major customers could materially impact revenues. The other relatively small financial risk is working capital. They have a positive 2026 cash-conversion cycle of 32.1 days. That means cash can remain tied up between paying suppliers, building equipment, shipping products and collecting from customers. So if projects are delayed, the business could need more working capital even while reported revenue remains strong. **Management 7.5/10** I know that the job of a CEO is to make me like him, but I really think Dan Shugar is a competent CEO, he's technically prepared, cautious, and he knows the product inside out. He's with NXT since the beginning and has brought the company to 5x profits so I must give him that. One thing I don't love is that he keeps dumping shares like they're chocolate chips but hey I guess we all have bills to pay! As I said, I like the acquisitions but I also understand that they are not not automatically value-creating. They can increase revenue and EBITDA while failing to earn returns that justify the purchase prices and integration costs. The key things I would monitor are organic growth, operating margins, free cash flow, dilution and returns on invested capital after acquisitions. Management incentives are based on EBITDA and FCF which I'm okay with. A negative here is that there has been some share dilution (4.7% in 3 years), but that's within my tolerance. I also want to see whether the newer businesses can reach attractive margins without reducing the economics of the tracker business. Power conversion and storage could expand the addressable market, but they may dilute margins before customer adoption creates enough scale. **Valuation 8/10** For my valuation, I used a six-year forecast period, I assumed that growth slows down to 17.5% annual revenue growth, an 18.5% net margin and a 12.82% discount rate. Under those assumptions, I get a fair value of approximately $139 per share. The 18.5% net-margin assumption also reflects the possibility that the business benefits from scale and a better mix with the bundles. At the same time, I understand that this valuation may be too bullish. This valuation would require continued strong growth and very disciplined execution. The upside depends on NXT growing into the valuation rather than simply receiving a higher multiple. If growth slows materially, margins disappoint or the market treats NXT as a cyclical equipment company, fair value could be lower. **SWOT** **Strengths** * Nextpower combines tracker hardware, TrueCapture software, project engineering and more than 600 patents, creating switching friction before construction begins. * Calculated TTM through 2027 Q1 free cash flow reached $550.72 million against calculated net income of $594.05 million. * At 2027 Q1, reported cash was $1.214 billion and reported total debt was zero, preserving funding flexibility for operations and expansion. **Weaknesses** * Nextpower reports one segment, so investors cannot isolate the margins, growth or returns of trackers, software, electrical equipment and newer products. * Gross margin ranged from 8.6% to 33.7% between 2019 and 2026, showing that project mix, costs and pricing can materially reshape earnings. * Shares increased 4.7% from 2023 to 2026 despite $552.40 million of cumulative executed repurchases, limiting operating progress on a per-share basis. **Opportunities** * Power-conversion capacity of 1 gigawatt annually, rampable to 3 gigawatts, gives Nextpower a route into storage and data-center applications. * The proposed Prevalon, Zigor, Apex Power and Zimmermann transactions could broaden the product set serving the same solar-project customers. * FY2027 revenue guidance of $3.8 billion-$4.1 billion provides a near-term path for backlog, international bookings and adjacent products to increase scale. **Threats** * Tariffs and steel-cost increases can reach owner value through lower project margins, with the observable consequence of operating margin falling below FY2026's 19.4%. * Solar-project financing or construction delays can defer backlog conversion, with the observable consequence of weaker cash flow and a longer positive cash-conversion cycle. * Fixed-tilt alternatives can reduce tracker adoption when panel prices or project returns change, with the observable consequence of slower orders and weaker pricing. **Final view** I think NXT is a financially solid, efficient, fast-growing solar-equipment company with a real operating base and an unfinished strategic transition. It's not some small market cap with no pricing power, it has a market leader position in an essential component of solar, which is now the number 1 newly installed energy type. I like the price too. I recognise tariffs and interest rates as threats, but I don't think they will matter in the long term. Maybe the biggest threat is that if panels get cheap enough, it might be cheaper to just install more panels, but I just don't agree with the idea that a whole industry would turn to the more inefficient, land-requiring solution to get some panels from china. Also, if tariffs do stay, the cheaper panels won't be an issue probably. I hope this was useful for someone! I'd like to hear what you think, and if I am missing something.