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Why this one solar stock has the most upside

Chris Lau, Kapitall: Solar stocks are staging a comeback after a rough couple of years. Which solar stock has the brightest future?

Solar energy plays rose and fell dramatically over the last few years after a confluence of bad news hit the sector. The end of solar subsidies, excess supply, and weakening demand all pushed solar stocks to multi-year lows last year.

Read more from Kapitall: Are there any music streaming standouts?

All of that changed in recent quarters. Weak firms went bankrupt, and strong ones found a way to sell solar panels profitably. Trina Solar (TSL) led the sector higher after reporting a very strong first quarter last Wednesday. The upside for solar could be just the beginning.

Trina surprises market

Trina warned markets in April that it would ship and  sell less product than consensus. At the time, the company blamed a temporary decrease in shipments to the EU as the reason for the miss. In the quarterly report, Trina not only reported a sharp increase in profitability (gross margin), the company also said shipments would grow by as much as 1010 megawatts (“MW”) in the current quarter (Q2).

Still some concerns

Trina has a healthy $577.7 million in cash, but its bank borrowings are $982.5 million. Gross margin was higher, thanks to shipments to regions that offer high average selling prices for Trina. Not all plays in the solar sector responded to Trina’s results:  First Solar (FSLR) and SunPower (SPWR) both added a few points, but the trajectory of its share price is still downward.


Trina’s valuation is very low compared to SunPower and First Solar. The latter two trade at a forward P/E of 28 and 24, respectively. Trina’s forward P/E is just 15. Still, First Solar continues to win deals. It most recently announced a collaboration with Ingenero, an Australian solar firm. The two companies will develop a hybrid diesel-solar power plant for  Rio Tinto's (RIO) Weipa bauxite mine in Australia.

SunPower has yet to really recover from the selling pressure it faced earlier in May. The firm forecast Q2 revenue and earnings would be below consensus. It expects revenue will be as high as $625 million on earnings of $0.35 per share. For the full year, SunPower projects earnings of $1.10-$1.40 per share.

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