Here’s some excerpts from an article written by Jack Yetiv, posted at Seeking Alpha. He has written previous articles on solar companies, which you can find by clicking on his name.
Further Musings on Solar Stocks
“Yesterday, my third article on the solar space appeared on these virtual pages. That article built upon my two previous articles, which offered some forward-looking views on the solar space in general and concluded that Trina Solar (TSL) offered the best risk-reward ratio in this space….
Because CSIQ has gone up so much, it is no longer as much of a bargain as it was when I recommended it—its 2008 PE has increased from 11 to 15. Because TSL’s price hasn’t moved as much—despite the fact that earnings estimates for 2008 have increased substantially (from $2.83 to $3.39)—TSL is now the best bargain in this group…
Other metrics on TSL are also quite compelling—TSL is projected to increase revenues from about $300 million in 2007 to $800 million in 2008, and to more-than-double its earnings from $1.54 in 2007 to $3.39 in 2008. One analyst believes that TSL will make $4.19/share in 2008. Another positive for TSL is that it has secured much of its polysilicon requirements from 2008 til 2015 (TSL has secured 95% of its 2008 requirements). Finally, TSL still has a long way to go to revisit its 52-week high of $73.
In my view, although SPWR is clearly the technology leader in the group today (they are cranking out 22% efficiencies in the lab, and are selling 19.3% efficient panels commercially), its growth rate has definitely decelerated. Indeed, on the conference call last week, SPWR indicated that revenues in Q3 of this year will be flat with Q2. In my view, even given its technological prowess, SPWR is overpriced at a forward PE of 43. In addition, I believe other companies will substantially narrow the efficiency gap in the next year or two (note that STP’s Pluto technology is reputed to be achieving production efficiencies of 18-19%).
Suntech Power (STP) is a closer call for me. It has actually done worse since my last article, having dropped from $51.70 on 1-25-08 to $49.18 yesterday. I panned STP in January because I thought it was overpriced at its PE of 31, but I picked up some shares last week at about $45, at a PE of about 28. The reasons for this are as follows: STP’s price got nailed recently because of lower than expected revenues, lower margin due to higher silicon cost, some foreign-exchange losses and unexciting 1Q08 guidance that was below 4Q07 actual revenues….
One stumble and all of a sudden, FSLR no longer merits a PE of 100, and contraction of the multiple kills the stock price….Stocks like FSLR remind me of a Ponzi scheme or of our housing bubble—the only reason you are willing to pay “X” amount for something is because you believe someone else will pay YOU more than “X.” But there is always a peak and a crash, whether it’s a ridiculously-priced house or a ridiculously-priced stock….
Frankly, I would not even pay a forward PE of 30 or 40 for FSLR, and here’s the reason why not:…”
