Cramer's Capstone Turbine Back of the Envelope Calculations

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Capstone Turbines is a buy according to Cramer because of deal with heavyweight Wal-Mart (WMT). Capstone Turbines, a manufacturer of standalone electrical generators, is supplying Walmart with microturbines in an experimental Wal-Mart store in Colorado as the retailer is looking for opportunities to lower its energy costs. Cramerâ?‚??„?s back of the envelope calculations yielded a profit to Capstone if around $144,000 per unit. Furthermore, Cramer believes that the run on Capstone is not over as this news is still not widely known.

What is Capstone Turbineâ?‚??„?s upside potential? The stock was already up around 10% afterhours before Cramerâ?‚??„?s show, suggesting that at least a significant amount of investors were aware of this news. As of now, the stock is up 26.27% in afterhours trading (link: Yahoo! Finance). Is there still more upside? The answer may be yes. A quick search on Google
GOOGLE
$396.97
Change: +6.57 - +1.68%
as of 11/14/2005 4:00pm
, Google
GOOGLE
$396.97
Change: +6.57 - +1.68%
as of 11/14/2005 4:00pm
News, and a few other news sources yields very little about Capstone and the cursory search did not produce anything about its deal with Wal-Mart.

One of the key downside risks is whether Capstoneâ?‚??„?s deal with Wal-Mart will expand. If Wal-Mart concludes that Capstoneâ?‚??„?s microturbines are not performing up to their standards, more widespread deployment of Capstoneâ?‚??„?s microturbines will not happen meaning an immediate drop of several percentage points. On the upside, however, announcement of a nation-wide deployment of Capstoneâ?‚??„?s microturbines will certainly eliminate the â?‚??“uncertainty factorâ?‚?? and the stock will trade up.

As for the immediate short-term, however, there may be more upside to this stock simply because investors are still finding out about this news. The question becomes, â?‚??“How efficient is the market with respect to Capstone Turbine?â?‚?? One can make the argument that the story is already fully widespread the moment it was broadcasted on Mad Money, but the fact that no or few news articles are found can be used to argue the contrary.

Capstone Turbine represents an interesting stock to watch.

Check out news, commentary, and analysis (coming soon!) at http://www.insidemadmoney.com - an inside look at Cramer's Mad Money.