I'm sure right now holders of Suntech Power Holdings (NYSE:STP) stock are well aware of its nice break back over $30, so I'm not going to mention that. Or am I? Suntech broke back over $30! Glad to get that out of my system...
A few items I wanted to point out:
* I think there was continued selling pressure from the "insiders" after Suntech announced third quarter results. As I've mentioned before, by insiders I mean the VCs that invested in Suntech prior to the IPO. The ideal for the VCs is to find times to sell when there is high liquidity and low likelihood of tanking the stock from their selling - and a good earnings report is exactly that. Using my lovely E*Trade Power program I counted up somewhere around 1.9m shares of Suntech stock registered for sale under Rule 144 in the month leading up to the earnings release. I obviously don't have any definite data to show that this selling actually occurred when Suntech announced, but it would be a tidy explanation of why the price was muted for a few days directly after earnings then started to rise. The tough part about these sales is that there's not really a good way to figure out how much selling is still yet to come - even when we get the next 20-F filing we're not going to see most of the pre-IPO owners because they became sub-5% holders at the IPO.
* Tom Friedman, New York Times columnist and author of The World is Flat, put out a nice article on Dr. Shi [CEO and founder of Suntech] and Suntech. The gist of the article is that Suntech has done a great job taking the lead in solar power in China where it is becoming painfully obvious that alternative energy is not an option, it's a necessity. Tom decries the fact that the US has not been as aggressive as should be, and that when solar power does get to that point where it is a really price competitive form of power generation we may be importing our solar cells from China.
* A lot of the bearish chatter I hear around Suntech has to do with the fact that there are a lot of early or development stage companies out there working at bringing thin film solar technology to market. The thought is that once thin film hits the market traditional PV manufacturers like Suntech will be out of business basically overnight. I don't think this is a bad argument at all, at least in terms of the potential of thin film, but it does not make me bearish on Suntech. It's silly to expect that everyone looking to invest in solar would know the background and bio of Suntech's CEO [or is it? they are a top-four worldwide manufacturer now as Mr. Friedman points out], but Dr. Shi has actually been working in the area of thin film technology for a long time. Not only did he study thin film technology at the University of NSW when he was working on his PhD, but he also ran a company spawned from that research until he left to start Suntech. This film may, in fact, be the next wave of solar, but I wouldn't be surprised if there is a goodly amount of thin film research going on at Suntech right now. In the meantime, though, they are doing a nice job profiting off of the current PV technology. For some more info on Dr. Shi check out this little tidbit [you have to scroll down a little bit to get to him].
* Today Suntech announced a deal to distribute MSK Corp's [a Suntech subsidiary] "Just Roof" product in Canada through ARISE Technology. The Just Roof product is described as:
"one of MSK's several unique Building Integrated Photovoltaic [BIPV] systems, [which] functions as a fully self-contained watertight roof structure, eliminating the need for traditional roofing materials below the panels."
As for Canadian demand, well that's being boosted by recently announced renewable energy subsidies in Canada. For example, the article cites the Ontario government paying citizens $0.37/kWh for solar power over the next 20 years. Given that MSK was a weak spot in Suntech's Q3 earnings, this is nice to see.
* As for valuation on Suntech, $32, or 27x '07 EPS estimates and 46x '06 EPS estimates hits right about at my estimate of fair value. And as much as I like Suntech it's one of the most uncomfortable valuations I've ever done [I'm more of a value kind of guy]. Some people may scream that with 55% estimated 5-year growth Suntech's PEG is only 0.84 for 2006 and a paltry 0.49 for 2007. To that I say that once I see projected growth in excess of 30% I start to discount heavily - maintaining a growth rate like that is a Herculean task. That said, if you follow The Motley Fool, one of the cornerstones to their very successful "Rule Breaker" portfolio is that early in their lifespan great companies have often been called overvalued. Plus, with SunPower (NASDAQ:SPWR) trading at 43x '07 estimates and 77x '06 estimates, and Evergreen Solar (ESLR) not even expected to reach profitability by '07, and both showing lower projected growth than Suntech, Suntech certainly isn't the most richly valued of the US exchange traded solar group. So at $32 I think there still is profit potential - if it hits a PEG of 1.0 on 2006 EPS estimates you're looking at $6.50/20% up - but at this price I don't think it's a screaming buy. Either way, be ready for some volatility, if the price continues to rise there's a good likelihood that more of those VC sellers will step back into the market.
STP 1-yr chart
Disclaimer: I am an STP shareholder, and probably in danger of being accused of falling in love with the company.