Small Cap Strategist is published by Crystal Equity Research an independent research resource on small capitalization stocks. Follow along as we discuss the most recent trends in the small-cap sector, investigate interesting companies and pan a few not-so-promising stocks.
the November 5th post on Canadian Solar (CSIQ:Nasdaq) I suggested a multiple of 10 times the
consensus estimate for earnings in 2014 might be a compelling value for the
solar module producer.Putting a value
on is competitor Yingli
Green Energy Holding (YGE:NYSE)
is not so easy given the string of losses reported by Yingli.The usual price to earnings multiple cannot
be used to value a company swimming in red ink.That leaves the multiple of price to sales.Yingli trades at 0.5 times sales compared to the
one-to-one multiple that is the average for the solar industry. Call that
difference the ‘red ink’ discount.
should have profits.It lays claim to
being the world’s largest producer of photovoltaic cells and modules.The company shipped 2,300 megawatts of solar
modules in the year 2012.First Solar (FSLR: Nasdaq) was a distance
second. The installed base of Yingli
solar panels exceeds seven gigawatts and has spread over forty countries around
the world.Sales in the most recently reported
twelve months were $1.8 billion, down from $2.3 billion in the year 2011, when
prices were higher.
depressing as are continued reported losses, the really bad news for Yingli is
its spotty record in generating cash flow from operations.There is an unsteady flow of inventory levels
and collections on accounts receivable appear to run in fits and starts.The results are a dwindling supply of cash
resources, mushrooming current liabilities and rising long-term debt.
this gloom and doom took its toll on the YGE price, with the stock setting a
long-term low of $1.25 a year ago.Since
then the stock has been a dramatic ascent, rising by five times over in the
last year.As the solar industry
re-establishes itself at a lower, more cost-efficient production capacity, more
than just a few competitors are likely to wash out.Indeed, there have been a number of
acquisitions and bankruptcies in the sector over the past three years.Suntech Power Holdings (STP:NYSE) is the most recent casualty to a Chapter 7 bankruptcy
filing by bond holders and the assets of Twin Creeks Technologies have now been
tucked into GT Advanced Technologies
Yingli is expected to be among the survivors.That makes the stock worth looking at even though it is no longer
trading at a bargain basement price.Indeed, a review of historic trading patterns in YGE suggests the
pullback in recent weeks might have left the stock in oversold territory-at
least in the near-term.It is a compelling
opportunity for investors with long-term investment horizons and a bullish interest
in the solar sector.
Neither the author
of the Small
Cap Strategist web log, Crystal Equity
Research nor its affiliates have a beneficial interest in the companies
mentioned herein. Crystal Equity Research has a buy rating on GTAT.