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.
of two solar panel producers appeared on one of our favorite stock screens the
other day-energy stocks that have traded downward to a
point they appear oversold.Trina
Solar, Ltd. (TSL:NYSE)
recently closed at $11.22, down 39% from its 52-week high set in early March
this year, but well above where the stock was trading a year ago.RenaSola,
has followed a similar track, recently closing at $2.61 well above its 52-week
The question for
investors is whether investors should take advantage of the current price
weakness to pick up shares of long-term winners in the solar power race…..or
company has reported a recent profit.RenaSola
lost $258.9 million on $1.52 billion in sales in the last twelve months.Trina Solar reported higher sales of$1.8
billion in the same period, but managed to keep its net loss at a more modest
level of $72 million.The losses came
amidst a global shakeout in the industry, allegedly triggered by dumping by
China’s numerous solar panel producers.
half dozen or so analysts who follow these companies seem to think the worst is
over.The consensus estimate for Trina
Solar is $0.86 earnings per share in 2014, followed by $1.52 in 2015.Those estimates are the results of upward
adjustments to published estimates made within the last couple of weeks.Only one analyst has published estimates for
RenaSola, but this brave soul also thinks RenaSola is going to report a net
profit in 2014 and 2015.
If these solar
companies are about to round the corner, it makes sense to load up for long
positions at relatively cheap prices.Or
is not hard to find viewpoints the solar industry.For example, industry analysts at the sell-side
firm Credit Suisse recently issued a warning on slowing growth in the solar
sector.If they are correct that means the
competitive battle is about to go from bloody to gory.There are hundreds of solar panel producers
still operating around the world, with a good share of them located in
China.I believe some will not
survive.I think the ones that are more
likely to survive will the among those that 1) have the most efficient and
therefore most marketable solar panels and 2) have strong balance sheets with
low debt and ample cash.
SunPower (SWPR:Nasdaq) is widely hailed
as the developer with the most efficient solar power technology, that is how
well the solar cells convert the incoming solar rays into electricity.While most solar panels deliver efficiency in
the range of 11% to 15%, SunPower has developed panels that have tested at 20%
conversion.What is more SunPower has
come up with a multi-junction concentrator that converts a whopping 44% of the
solar energy they receive to energy.When
these two modules come into the market place, I would wager it will result in
capture of significant market share.
Solar offers solar cells with efficiencies in a range of 12.9% to 16.7%, while
Renasola’s efficiency range is 13.5% to 16.0%.Trina spent $131.7 million on research and development over the last
three years or 4.1% of sales during that period.Over the last three years RenaSola has spent
$90.5 million on research and development or 1.8% of sales.
SunPower spent $179.4 million over the last three years, or just 2.5% of its
sales to deliver those industry leading efficiency ranges.It appears both Trina Solar and Renasola will
need to step up their respective R&D games to keep apace.
superiority has paid off for Sunpower, which has converted 1.3% of its sales to
operating cash flow over the past three years.Consequently, the company has managed to keep its debt level to a respectable
level and its debt-to-equity ratio to 0.74.Trina has been a net user of cash over the past three years, so it
should be no surprise that its debt levels and are higher.Its debt-to-equity ratio is 1.56.RenaSola managed to squeeze out positive cash
flow in the last three years, but its conversion ratio is less than 1.0%.RenaSola’s tepid cash flow generation is
probably why the company has racked up some debt to the point its debt has
built up to 2.48 times is equity.
these few data points, it might be premature to count RenaSola or Trina Solar out
of the solar panel market despite that they do not compare favorably with the
industry leader.Both companies still
have ample cash balances.Coupled with an
improving profit picture, some might conclude both have a chance to remain
viable competitors in the solar industry.In the meantime, traders appear skeptical and both TSL and SOL are
trading as if the companies are about to fly into the sun and burn.
Neither the author
of the Small
Cap Strategist web log, Crystal Equity
Research nor its affiliates have a beneficial interest in the companies