In our February 11, 2010 featured article, we gave our view on the near term trend for Chinese solar stocks:
The near future is not bright for the sector as a whole and we are not placing any of Chinese solar stocks in our long term buy-and-hold list.
Now one month has passed and most of the solar companies have reported their earnings and also given their guidelines. The following table shows the results:
Q4 EST and ACT is the company's Q4 2009 estimated earnings and actual results.
Q1 and Q2 EST are projected Q1 and Q2 earnings.
2010 and 2011 EST are estimated earnings for both years.
Growth EST (%) is the estimated growth rate from 2010 to 2011.
cPrice is the close price on March 16, 2010.
PE 10 and PE 11 EST are protected PE value for 2010 and 2011 based on all the given numbers.
As of this writing, two companies have yet to report Q4 numbers (LDK and SPWRA) and some numbers are still in the air.
The table is sorted based on 2010 PE.
1. Two companies have negative growth rate: CSUN (-18.32%) and SOLR (-8.77%). Therefore their PE 10 is the lowest among all solar stocks.
2. SOL has a very low PE value and high 32.08% growth rate. That is because it missed its Q4 2009 numbers. If the company does deliver expected earnings in Q1 2010, it is undervalued.
3. WF has the highest growth rate (+59.21%) among all solar stocks but a very low PE (only 18.55). That is because the company missed Q4 numbers and the market does trust its future earnings projection.
4. FSLR and TSL's estimated growth rate agree with their projected 2010 PE. But these two companies consistently beat estimates by big margins. We consider these two to have the best price gain potential. If FSLR can grow at a 25% rate for 2010 and 2011, our fair valuation will be $150.00. If TSL can put a 15% growth rate, we will give it a $30 price tag.
5. SPWRA and LDK will report in coming days and we will give our view later.
6. JASO is fairly valued and will be traded in a range in the next few months.
7. Most of the stocks in this table have very limited downside risks. On the other hand, many have no big upside potential in the near term. Short term trading opportunities do exist from time to time. The future trend depends on their future earnings.
Remember, high demand, high revenue growth does not translate into better earnings. Also remember, company's future capacity expansion may need further financing and may create higher risks.
Disclosure: Long TSL, YGE, JASO