Natural gas has a bright future, both here and abroad, as an energy source in a variety of applications. Not only do countries like the U.S. and China have substantial shale gas reserves, but a host of companies like Westport (Nasdaq:WPRT) and Clean Energy (Nasdaq:CLNE) are developing technologies to exploit them in applications like vehicle fuel.

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For natural gas usage to meet its potential, though, the world needs a lot more infrastructure and that's where Chart Industries (Nasdaq:GTLS) comes into the picture. By offering good technology that addresses multiple points in the ecosystem (liquification, storage, distribution, etc.), this company should have many years of impressive revenue growth ahead. The question, though, is just how much of this the stock price already reflects.

A Leader in a Tight Market
Chart is already a leader in many of its primary markets and demand is heading sharply higher. During a recent conference at Barclays, management indicated that the industry is effectively sold out and lead times have topped 60 weeks. Not surprisingly, that is leading to higher prices and the company is considering whether to add/expand capacity (and by how much).

SEE: Oil And Gas Industry Primer

Where is all of this equipment going?

Major energy companies like BP (NYSE:BP) and Exxon Mobil (NYSE:XOM) (and/or the construction/engineering companies like KBR (NYSE:KBR) and CB&I (NYSE:CBI) that they hire) need heat exchangers, cold boxes, and other types of cryogenic equipment to move and market the gas they're getting from huge offshore discoveries). Likewise, a number of midstream gas companies are looking to build LNG terminals to liquify and transport natural gas to foreign markets like Japan.

Chart has already established itself as a real player. Competitors like Linde are not pushovers, but Chart has distinguished itself through technologies such as Core-in-Kettle, which allow for heat exchangers with smaller footprints and greater efficiency.

SEE: A Guide To Investing In Oil Markets

Chart Still Has Some Challenges
While Chart's end market opportunities are large and growing, it's not just a case of showing up and ringing the register. Building or expanding facilities may offer returns ranging from 2-to-1 to 4-to-1, but it still takes time and capital to build them (and the competition knows this too). Likewise, the entire ecosystem needs to secure the capital, products and permits that they need to move forward with their plans. Chart Industries' equipment may be a relatively small part of the overall budget of an LNG terminal or natural gas fueling station, but those projects still need permitting and funding to go forward.

Chart Industries may also find that its expansion into the biomedical market offers a whole new set of challenges. Companies like Lincare and Apria are seeing increasingly difficult reimbursement for respiratory care and Linde's acquisition of Lincare isn't going to make it easier to compete. And then there's the new medical device excise tax to consider. None of this means that biomedical gases are a bad business per se, but it may not be quite the dependable business that investors expect.

The Bottom Line
I'm not uncomfortable with the idea that Chart Industries could have over $3 billion in revenue by the end of the next 10 years. Nor am I uncomfortable with the idea that the company could convert about 10% of that revenue into free cash flow. Unfortunately, that doesn't really support a fair value for the stock outside of the $70s.

While I do love the idea of investing in the expansion of the natural gas infrastructure, I think investors today can probably find more value in areas like rig equipment or engineering. So while I think Chart Industries has a bright future as a company, I'd need to see a pullback in the stock before getting as excited about the equity.

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

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