Array Technologies: Following the Sun

Solar tracking solutions and services for utility-scale solar power generators are the mission of Array Technologies (ARRY:  Nasdaq).  Array has been around several decades, but only recently came to the public market with an initial public offering in October 2020.  In the twelve months ending September 2020, the company turned $916.8 million in revenue, providing $95.6 million in net income or $0.80 per share.  With an operating profit margin near 17%, Array presents an attractive profile.

By early 2020, solar energy had reached 1.7% share of electricity generation in the U.S., nearly all of which is represented by photovoltaic installations.  Still a small number but rising steadily.  According to the Solar Energy Industries Association (SEIA), 3.8 gigawatts of new solar capacity was added just in the third quarter 2020.  The work brought total installed solar capacity to 88.9 gigawatts.  Perhaps more importantly solar accounted for over 40% of new electric generating capacity additions in the quarter. 

Solar power developers are not simply ‘building in hopes that demand will come.’  The contracted utility-scale pipeline of power purchase agreements had increased to 69 gigawatts by the end of September 2020.  The numbers make it clear solar power is a part of the U.S. electrical supply and is gaining against other power sources.

With market opportunity and favorable demand sentiment well established, solar investments can easily be on the horizon of every investor.  It is not necessary to confine positions to the solar module manufacturers or solar system installers.  In the middle of it all are power generators and the equipment needed to make the watts mount up. That is where Array comes into the picture.

Array shares were sold at $22.00 per share in the initial public offering.  The shares closed 65% higher on the first day of trading.  Anyone celebrating that day probably suffered all the more on the roller coaster ride that followed.  The company took advantage of the frothy start to raise additional capital, selling another seven million shares at $35.00 per share, well below the prevailing price.  The stock now sits well above a line of volume-related support at the $40.00 price level. 

To grab a stake in Array’s future, traders will have to pony up 50 times the earnings that analysts expect from the company over the next year.  The valuation implies a two-fold multiple of the company’s anticipated growth rate  -  perhaps a bit too pricey for some investors.  Nonetheless, it behooves investors late to the Array party to keep watch for periods of price weakness.  A disappointing earnings report or the shock of an economic setback, could give patient traders a chance to sneak in the door.          

 

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.