Solar Energy

Hey everyone,

I'm new into investing and trying to make some picks in the solar world. I've read an article about 3 undervalued stocks. First Solar, Jinko Solar and Canadian Solar.
I'm focusing on First Solar at the moment wich is trading about 38% below Book Value (if my numbers add up right).
Now using the intrinsic value calculator and using a BV of 40 instead of 57, I still come out with a high value of about $115. Current price is $35.22

Am I totally wrong or is this a great price for a company?

I'd love to hear some feedback from you and I already appreciate your time looking into this!

Tobias

Comments

  • edited March 2
    That's not right.. even if you used $40 as your book value you shouldn't be anywhere near $115. If you used 13.96 as your first book value you'd get an 11 percent growth rate (Which is likely still too high for this company). While using 2.3 or 2.5 as your discount rate you would not end up over $100.

    Even with using $40 BV your growth rate is likely too high considering the last 3 years performance in the company. Also considering that they haven't netted and money consistently.

    Off a quick glance, I'd say there is definitely an argument for balance sheet value in this company. Good amount of assets and little debt and liabilities in general. It's extremely liquid with a good amount of current assets and PPE. However, the company doesn't make money. It would be difficult to invest in a company trading with a p/e of 82.5. However, a company like this has a good amount of variance in earnings and book value. It's difficult to say how cheap the company really is without a further dive.

    Basically the growth rate is the major factor. I would say 11% appears to be to big for the next ten years.

    (My opinion)
  • edited March 2
    I bought a small position in First Solar at 45 dollars last summer. I saw it as a company that was undervalued and went in based more on my ideals and less on research. The market is under pressure and the Chinese government had bought all the solar panels from many of the Chinese producers who were flooding the market and risking bankruptcy. I saw the strong balance sheet with first solar and big cash position to protect its short term interests however this has been my worst performer of my whole portfolio. I looked at Canadian Solar which I discovered is Chinese owned American listed company. I did not look at Jink so much but I think it may be more competitive.

    Solar now has very bad margins, I believe First Solar has moved some production to southeast asia from America recently to lower production costs to compete. They have also forgone their next planned model to go straight to higher end development they had planned to follow to try to keep some competitive advantage. I am still holding First Solar as I can still see a return in the next 2 years however many analysts have recently downgraded it.

    There is some competition from the individual home solar business as well as non-renewables corps with political sway and other renewables etc. FirstSolar seems to mostly do large scale energy production projects and seem to bid on overseas power projects with foreign government. Low oil prices had really hurt solars competitiveness. First solar has a joint yieldco with SunPower called 8point3. 8point3 is very negative cash flow but seems to be growing assets quickly with the help of its 2 parents and currently pays more than 7% dividend. Note i also own some shares of 8point3.

    I also read recently a Zacks article that mentioned one Sunrun which is a growth stock in the solar market but I am not sure what their moat is but rising revenue streams.

    It is still a very competitive market.

    I have renewable utilities in Algonquin, Transalta Renewables, also some shares of Emera which is only partially renewable but has a tidal energy joint project in the works. Also I have invested in a biodiesel & chemical plant. I know some of these utilities are susceptible to rising interest rates however I like the dividends to grow my portfolio as I am in for the longer term.

    The problem is a lot of the straight solar companies have no yield and are very susceptible to public sentiment. As it becomes more affordable than non renewables it will have a place but it is more like picking a horse in a race. You also have the Trump admin which does not believe in global warming and is bringing back coal. There are also disruptive technologies that can always threaten.

    Be warned, it may be cheap but I did not buy more on the drop. I think they are expecting more growth through 2018 and beyond. There was and still is a bit of a panel glut but as supply returns to a more normal level these companies should do better.
  • Just curious what your growth rate was when you valued it last summer #ghazel?
  • edited March 2
    Thank you s much for you help. The cheap price got me really excited finding a company. But for you #kavanaught6 this is not a buy right?
  • I can't remember but the P/E was around 6.5-8.5 I think so a return of about 12% minus a health 3% discount gives you a return of about 9% or more I guess. Also no dividend so most of that would go into growth and further production.

    I should do more thorough evaluations and discount cash flow projections. They are useful however they are still in the end estimates. Also when your looking at really deep value stocks they may have negative or flat growth rates.

    I thought that some of these competitors who were operating at a loss would fold and First Solar being a market leader with huge cash and low debt could operate like cisco and just buy up some of the other start up tech companies and outlast the oversupply bulk panel producers. I also looked at solar as a long term investment that i saw at the forefront.

    I guess I underestimated the glut of solar panel supply and the drag of low oil prices (coal is also a big or the biggest competitor due to the inherently low price especially in developing countries, there is however room for the solar market to grow as the price discrepancy narrows.) I thought we were already close to the bottom, i was wrong. I have done this a few times buying stocks before they turn. I guess then I would be more of a growth investor instead if I waited for that.


    If you ever hear Bill Gates Ted Talk on renewable energy and the future actually made me concerned as the systems he talks about are so much more integrated and beyond solar panels. I am not sure if it is public yet but he started a fund based on it. No yield as such just a good future with amazing technologies.

    https://www.ted.com/talks/bill_gates
  • #urbandrums not for me no. If it got cheaper I'd consider based on balance sheet value.

    #Ghazel, solar is honestly something I'm not very educated on though I am interested in it. It will be very interesting to see the progress it makes in 10 years.

    Here is a cool video I found a while back.


  • UNBELIEVABLE. But Great watch!
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