GIVEN THAT ITS main product is a space-age material, the uninitiated may be forgiven for assuming that Zoltek (ZOLT: 37.60, -0.40, -1.1%) refers to the Dark Lord of the Klingons. Rather, the St. Louis company makes carbon fiber, a substance that is stronger and lighter than steel. Demand for Zoltek's special brand of low-cost carbon fiber is soaring, thanks to the burgeoning wind-energy market. All that remains to be seen is whether the company can stop tilting at windmills and fulfill its capacity goals.

Carbon fiber has a wide variety of uses, from airplane and automotive parts to sporting-goods equipment to sailboat masts and hulls. It can be found in place of steel in reinforced concrete and is being developed for use in deep-sea drilling. In Zoltek's case, its rapid growth has come from the alternative-energy space. European giants such as Gamesa and Vestas, the world's largest maker of wind systems, are putting ever-larger blades on their turbines in order to drive down the cost of generating electricity. But traditional fiberglass blades tend to crack when they get too large, and that's where Zoltek comes in.

Thanks partly to its proprietary equipment and manufacturing processes, Zoltek makes cheap carbon fiber, putting it in a supreme position to feed the wind-farm industry's expanding needs. "Zoltek just happened to be positioned as a low-cost producer while all of the higher-cost, aerospace-grade carbon fiber is in great demand by Boeing (BA: 98.32, -1.18, -1.2%) and Airbus," says Stuart Bush, an analyst with RBC Capital Markets, who has a Buy rating on the stock. "These guys seem to have a near-monopoly position in the wind market, and that's why growth has really taken off over the last couple of years."

Having the right product at the right time has put a tremendous gust in Zoltek's sails. Revenue for 2006 rose 53% to $92.4 million from the prior year, and more than doubled from the $45.3 million recorded in 2004. For the current year, analysts, on average, forecast sales to grow another 70% to $157 million, according to Thomson Financial. By 2008 sales are seen at more than $240 million.

The question is whether Zoltek will actually be able to deliver on its massive market opportunity. Zoltek's stock is up 62% in the last year to $31.65 as of Tuesday's close, putting its market cap at $855 million. By comparison, the small-cap benchmark Russell 2000 index advanced 6.4% over the same period. But Zoltek's share-price run-up has been anything but a smooth ride. The stock began last year in the $10 range and surged to a 52-week high of nearly $40 in May. Disappointing top-line results pushed the stock below $20 in August. It recovered somewhat to above $25 going into December, but then the company lost a routine breach-of-contract lawsuit (it's appealing) and reported an earnings miss, dropping the stock below $20 yet again in the week before Christmas.

The main culprits for all that choppiness were snafus in ramping up capacity, especially at Zoltek's plant in Abilene, Texas. "The company has stumbled from execution, not from customer-demand issues," says James Oberweis, manager of the Oberweis Emerging Growth fund (OBEGX: 29.63, +0.04, +0.1%), which holds a position in Zoltek. "They haven't been able to bring on the capacity at the speed that they had anticipated."

RBC Capital's Bush agrees that execution has been Zoltek's biggest challenge, giving it more than its share of growing pains. "They have no trouble selling everything they make," he says. "The management team has just not rapidly brought in enough managers, and the right managers quickly enough, to mange the growth. That's been a problem with a lot of small companies like this. They have trouble managing the exceptional growth that they find themselves in."

Zoltek appears to have put its execution woes behind it, based on its most recent results. The company's sales nearly doubled to more than $30 million for its fiscal first quarter ended Dec. 31, while adjusted earnings of seven cents a share matched Wall Street's target. "It seems that current production is going well and that the production ramp is relatively on schedule," wrote David Edwards, an analyst with ThinkEquity Partners, in a Feb. 14 note on the results. "Demand for carbon fiber remains strong, and the company is gated simply by its ability to expand production."

However, Edwards downgraded his rating on the stock to Hold from Buy at that time, based on valuation. (Four analysts polled by Thomson Financial are split on whether the shares are a Buy or a Hold.) And with a forward price/earnings multiple of 37 and a price/sales multiple of about seven, the stock does indeed look pricey. On the other hand, both Bush and Oberweis think that management's execution problems have actually tempered the valuation significantly in light of Zoltek's long-term prospects. "We believe the stock still trades at a big discount to its projected growth," says Bush.

Emerging focus on global warming and climate change should only continue to energize Zoltek's wind-turbine business. The World Wind Energy Association forecasts the wind-energy market to post a 15% compound annual growth rate for the next three to five years. That demand is also likely to give Zoltek some nice margin-boosting pricing power, by Bush's estimation. "This is a derivative play on the wind industry similar to the way silicon has been a derivative play on the solar industry," he says. "We see this industry somewhat like where silicon was two years ago. Silicon has gotten so expensive because all of a sudden everybody wanted solar panels. We believe the same thing is happening with carbon fiber."

There are a number of other potential catalysts, given the expanding use of carbon fiber in a wide variety of applications. BMW has begun incorporating components made from Zoltek's carbon fiber in its new M6 car. The company's products are also used to reinforce concrete, line aircraft brakes and make other flame-resistant goods. How those other markets evolve remains to be seen, but they do offer some tantalizing opportunities.

"The wind-generation marketplace is likely to drive growth for them in the short term, and in addition to that there are other applications that they might be able to develop," Oberweis says. "Anytime you have an emerging company like Zoltek, assessing that risk is a challenging exercise. But based just on the current business, the valuation of the stock is reasonable. You add in the potential new applications and we start to get pretty excited."