Solar tracker company Nextracker (NASDAQ: NXT) announced better-than-expected revenue in Q2 CY2025, with sales up 20% year on year to $864.3 million. On the other hand, the company’s full-year revenue guidance of $3.33 billion at the midpoint came in 0.6% below analysts’ estimates. Its non-GAAP profit of $1.16 per share was 12.6% above analysts’ consensus estimates.

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“Nextracker delivered another strong quarter across all key financial metrics and saw continued market share momentum,” said Dan Shugar, founder and CEO of Nextracker.

Company Overview

With its technology playing a key role in the massive 1.2 gigawatt Noor Abu Dhabi solar farm project, Nextracker (NASDAQ: NXT) is a provider of solar tracker systems that help solar panels follow the sun.

Revenue Growth

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last four years, Nextracker grew its sales at an incredible 25.8% compounded annual growth rate. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Nextracker’s annualized revenue growth of 25.2% over the last two years aligns with its four-year trend, suggesting its demand was predictably strong. Nextracker’s recent performance shows it’s one of the better Renewable Energy businesses as many of its peers faced declining sales because of cyclical headwinds.

Nextracker also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Nextracker’s backlog reached $4.75 billion in the latest quarter and averaged 42.5% year-on-year growth over the last two years. Because this number is better than its revenue growth, we can see the company accumulated more orders than it could fulfill and deferred revenue to the future. This could imply elevated demand for Nextracker’s products and services but raises concerns about capacity constraints.

This quarter, Nextracker reported robust year-on-year revenue growth of 20%, and its $864.3 million of revenue topped Wall Street estimates by 2.3%.

Looking ahead, sell-side analysts expect revenue to grow 8.5% over the next 12 months, a deceleration versus the last two years. Still, this projection is above average for the sector and indicates the market sees some success for its newer products and services.

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Operating Margin

Nextracker has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 16.7%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Nextracker’s operating margin rose by 9.7 percentage points over the last five years, as its sales growth gave it immense operating leverage.

In Q2, Nextracker generated an operating margin profit margin of 21.5%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Cash Is King

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.

Nextracker has shown robust cash profitability, enabling it to comfortably ride out cyclical downturns while investing in plenty of new offerings and returning capital to investors. The company’s free cash flow margin averaged 10.9% over the last five years, quite impressive for an industrials business.

Taking a step back, we can see that Nextracker’s margin expanded by 13.7 percentage points during that time. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Nextracker’s free cash flow clocked in at $70.07 million in Q2, equivalent to a 8.1% margin. The company’s cash profitability regressed as it was 8.3 percentage points lower than in the same quarter last year, but we wouldn’t put too much weight on it because capital expenditures can be seasonal and companies often stockpile inventory in anticipation of higher demand, causing quarter-to-quarter swings. Long-term trends carry greater meaning.

Key Takeaways from Nextracker’s Q2 Results

We were impressed by how significantly Nextracker blew past analysts’ EPS and EBITDA expectations this quarter. We were also glad it raised its full-year EPS and EBITDA guidance. On the other hand, its backlog missed. Overall, this print was mixed but still had some key positives. Investors were likely hoping for better backlog numbers, and shares traded down 4.5% to $62.06 immediately after reporting.

Is Nextracker an attractive investment opportunity right now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.