LDK Solar (NYSE:LDK) has shown remarkable gains of late. I thought it may be a good time to comment of some of the fundamental reasons why this may be. This article should be scrutinized carefully against my previous article. Investing is risky and there is a tendency to heasitate, doubting one's position and grabbing profits while they are on the table. There is nothing wrong with this. However, how many times have you or I pulled money off the table only to kick ourselves for not going with our gut feelings? For this reason, I tend to be very analytical, letting the math do my thinking, separating emotion from fact.
Yahoo offer users the ability to download historical quotes. For instance, one can do an analysis on the minimum and maximum closing price from the day of the LDK Q3 Earnings Call to the present time frame. Why does this time frame matter?
It is a measure of investor sentiment.
It is most relevant to the near term due to proximity to the present.
Finally, it is a measure against a reference since during the entire time-frame, EPS was a constant.
For convenience, the following data for the time period from 11-8-2010 (LDK Q3 Earnings Call) to the present is a snapshot for LDK Solar as extracted from Yahoo.
|Jan 3, 2011||$10.55||$12.93||$10.22||$12.10|
|Dec 1, 2010||$10.39||$11.58||$9.91||$10.12|
|Nov 8, 2010||$13.39||$15.10||$10.00||$10.00|
The above table shows the minimum PPS at $9.91 and maximum at $15.10.
This is very useful as we also know the EPS according to yahoo for the entire time-frame was $1.01
Since the PE multiple can be determined from the above, one can also determine minimum and maximum PE numbers, loosely translated as, “the range of investor sentiment”. These numbers and the calculations are provided below:
2010Q3 Maximum PE = 14.95 ($15.10 / $1.01)
2010Q3 Maximum PE = 9.81 ($9.91 / $1.01)
From my most recent article, I provided two probable 2010Q4 EPS targets and information on how they were obtained. The lowest number given excludes what I believe will show as a one-time-gain. In all fairness, it may be the conservative number. Using the low of $1.10 as a conservative target for the 2010Q4 EPS and the lowest PE number occurring in 2010Q3 of 9.91, the math can be completed to provide a price target.
If the $1.01 2010Q4 estimate holds, the revised EPS number after the 2010Q4 earnings should go to $2.24 2010 yearly EPS (e) = [ $1.10 Q4(e) + $0.72 Q3(a) + $0.36 Q2(a) + $0.06 Q1(a) ]
Using these low targets, a PE number of 9.81 and the yearly EPS of $2.24(e) post Q4 Earnings, the math suggests a price per share around $21.97 after the Q4 Earnings Call. Frankly, that is a lot of gain to be had in roughly 60 days and if only half of the difference between the current PPS and the mathematically derived target is achieved, why would investors sell?
Disclosure: I am long LDK.
Forward-looking statements made herein involve known and unknown risks and uncertainties and are based on information found primarily in the links provided and other historical data found in public domain. At times, mathematical relationships are used for comparisons which may be in error or incomplete. As such, no guarantee of accuracy or investment gain or loss can be made. The reader or investor bare sole responsibility for their actions. As of the date of this article, the author has less than 5,000 shares of LDK Solar.