Invest in Energy: Could Profit Taking Create an Entry Point for Solar Stocks?

Chris Lau, Kapitall: Solar stocks lost some of their shine after a huge year. Are they poised for a turnaround?

The solar energy sector is diverging negatively from the general markets. Solar stocks are down in recent days, led by a report of quarterly losses and a plant closure by ReneSola (SOL). Last year, excess supply for solar panels and weak pricing hurt stocks. In 2013, solar stocks reversed for the opposite reasons: prices are holding, and are expected to rise in 2014 – 2015. 

One year return

Returns in solar stocks this year have been nothing sort of spectacular:

Click on the interactive chart to view returns over time. 

Canadian Solar (CSIQ) gained the most and is up seven-fold in the past year. Competitor  Trina (TSL) is up nearly two-fold. Trina shares may have reached a peak, having tested the $17.80 level numerous times between October and November. Shares closed recently at $12.57. 

Read more from Kapitall: Should Value Investors Warm Up to These Solar Stocks?

Despite the decline, Trina is on a rebound. In the third quarter, revenue was $548.4 million on gross margins of 15.2%. Trina has 557.8 million in cash and cash equivalents. Looking beyond, Trina believes module revenue will grow to 15% of its total. After 2015, that portion could be 25%. Growing module sales should improve the steady growth potential. 

Canadian Solar has the highest average selling price, beating even Chinese solar companies. The firm continues to execute on sales. In 2014, gross margins could rise as the company boosts sales. In its third quarter report, Canadian Solar achieved gross margin of 20.4% on net income of $27.7 million. The company shipped 478 megawatts in the quarter, which exceeded its shipment guidance between 410 to 430 megawatts.

Keep an eye on profits

​ReneSola’s weak prospects appear to be company-specific, and may not indicate weakness in the sector. As investors take measure of profits, Canadian Solar and Trina should be added to investor watch lists. Their prospects improved in 2013 and are set to be even better in 2014.

 

(Written by Chris Lau, a Kapitall Writer. All data sourced from Zacks Invesment Research.)

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