NEW YORK ( TheStreet) -- Shares of Chinese solar wafer maker ReneSola ( SOL - Get Report) are up 92% over the past six months. The ReneSola surge, occurring as pricing has been tight in the wafer market, compares favorably to a 3% rise in the U.S.-traded solar sector during the same period.

A slowdown in ReneSola shares, therefore, has to be coming. Wrong -- at least according to Macquarie Securities. Macquarie initiated coverage of the Chinese solar wafer maker on Thursday, saying the Street is way low on the consensus for ReneSola, and the Chinese solar stock's shares are set to go higher, much higher.

Investors were buying the argument on Thursday, with ReneSola shares up more than 6% in the early afternoon, the biggest gainer in the solar sector, and hitting its 52-week high.

Here's the upside by the trading multiple numbers:

Macquarie's $19 price target on ReneSola assumes a 12x multiple of the securities firm's 2011 EPS estimate of $1.80. Macquarie's estimates for 2010 and 2011 are 21% and 22% above the Street consensus, respectively.

ReneSola is trading at 7.4x Macquarie 2010 and 6.5x Macquarie 2011 estimates. The rest of the U.S.-traded solar sector, which many argue is undervalued, trades at 11.7x Macquarie 2010 and 8.9x Macquarie 2011 estimates.

Macquarie analyst Kelly Dougherty wrote, "Simply put, we just don't think the $1.30 2010 or $1.48 2011 consensus estimates reflect SOL's growth potential. We expect more upward revisions, likely in early November along with 3Q10 results."

In fact, the Macquarie analyst thinks that ReneSola upside could be even beyond its bullish estimate, as it is being conservative given ReneSola's small-cap nature and less liquid trading that the broader group of Chinese solar stocks for which Macquarie affords a 15x to 16x trading multiple.

The Macquarie analyst described ReneSola as relatively underfollowed and somewhat underappreciated, leading to the valuation shortfall. That was echoed by a 52-week high being reached in ReneSole shares on a day of decent, but not spectacular trading.

Several catalysts for a move higher are coming in the opinion of the Macquarie analyst, including bullish guidance for 2011; continued wafer pricing strength and ongoing cost improvements, which is likely to drive healthy margins well into 2011; and announcements about contracted 2011 volume and pricing leading to improved visibility.

Some of the arguments made by the Macquarie analyst in favor of the ReneSola bull story are familiar: low-cost Chinese production advantage, and the opportunity for second-tier Chinese module players like ReneSola to capitalize on the outsourcing trend with cost-inefficient Western companies.

The Macquarie analyst writes, "SOL's ultra-low wafer costs provide a strong platform to make an attractively priced module so this should allow the company to quickly gain share in this growing market. We therefore see the OEM business as offering meaningful growth potential in 2H10 and well beyond. It should also provide SOL with improved stability/visibility since most OEM arrangements are longer term and will help solidify their relationships with current wafer customers while expanding the addressable market."

Macquarie also believes, though, that ReneSola's core focus on wafer production sets it apart from more vertically integrated Chinese solar module stocks. Indeed, that might set it apart in the minds of investors, in the same manner in which Chinese solar cell producer JA Solar ( JASO) has accomplished a run up to 52-week high levels.

However, it also leaves the door open to arguments that short-term advantages gained by these pure-play solar cell and wafer stocks don't bode well for their longer-term development, and if they can't make fuller vertical integration work, they may ultimately be squeezed. Of course, it doesn't mean upside doesn't exist currently, as investors clearly think is the case in both JA Solar and ReneSola.

Another bullish trigger for ReneSola that is not always associated with Chinese solar stocks is a favorable balance sheet in Macquarie's opinion. Macquarie notes that ReneSola is one of the Chinese stocks to generate free cash flow and that its wafer core strategy helps to manage spending and keep the debt burden experienced by many Chinese solar stocks in check. "We believe ReneSola can fund any further expansion through cash-on-hand, operating cashflow and/or reliance on existing credit facilities without having to access the capital markets," the analyst wrote.

--Written by Eric Rosenbaum in New York.

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