Canadian Solar Inc: Are Solar Energy Stocks Due for a Solar Eclipse?

 

Solar energy stocks have had a tremendous run this past year providing the only sunshine in many investors’ portfolios. Have their stock valuations now gone into the stratosphere?

Let’s first examine the dynamics of the industry: The industry is predicted by most analysts to grow at approximately 50% per year. Solar modules are made with standard photovoltaics (PVs) and the more advanced thin-film technology. At this point there seems to be little competitive advantage amongst the current players in the industry. The industry is new and constantly changing. The focus is and always has been on costs: to produce a product that costs the same as current fuel-derived electricity. With this in mind one would surmise that at this point in time none of the major solar company’s deserve a premium in its’ stock price over the other.

Canadian Solar Inc. (NASDAQ: CSIQ) was founded in 2001 and produces various solar modules and custom-designed solar application products serving worldwide customers. Quarter 4 net revenues for 2007 increased a whopping 423% to $127.46 million from $24.37 million in Quarter 4 of 2006, and from $97.44 million in Quarter 3 of 2007.  Gross profit for the year 2007 increased to $23.8 million from $12.3 million in 2006, a 93.4% increase. Revenue for the year 2007 increased 344% to $302.8 million from $68.2 million in 2006. Net revenue for 2008 is forecasted by management to be $650 to $750 million which would be an increase in excess of 100%. There are approximately 27.27 million shares outstanding. Canadian Solar is selling at 1 times 2008 projected revenues. This would indicate that the company is reasonably priced. Due to the stocks past years tremendous run up in price and the industry’s intense competitive environment I would look to buy on any price dips below $20. This is a company in an industry that has a bright future.