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GT Solar (SOLR) is a hang-onto-the-seat-of-your-pants type of technology company. What matters, though, is that this firm has expanded aggressively beyond the solar industry, so don’t be fooled by the name. The firm has entered into other lucrative specialty spaces such as the LED market. With GT Solar now having finally completed the expansion of its Sapphire manufacturing facility for the LED market, this only makes us more bullish on the name.

Looking at the firm’s current numbers, it’s not hard to tell that it’s going places. The question always is, “Can it go higher and do better?” After reviewing a few key points listed in the updated forecast for Q1 2012 and combining this information with multi-year trends, we think it can go higher and rate the firm a Buy.

Year over year quarterly revenue growth of 39.5% looks great. What’s better though is seeing that the five-year average revenue growth rate for this firm is 80.63%. We honestly had to pause for a moment in amazement at this type of sustained achievement, given the recent global recession.

Recently the firm has revised its forecast upward, and it's mind-blowing. The firm forecasted that its Q1 2012 revenue projections would increase from roughly $140-150M all the way up to $225M. That’s roughly an increase of 60-75% relative to previous revenue estimates.

Normally, we would be concerned about growth sustainability, but not with SOLR. The firm is entering new markets and this means new opportunities for expansion and growth. Given this reality, the firm should be able to sustain a high growth rate for an extended period of time. As well, we reviewed the firm’s receivables turnover ratio to make sure the majority of sales being incurred weren’t just all on credit. The numbers made it clear that this wasn’t the case and the receivables turnover trend was positive over the same five-year period referenced earlier.

Multi-Year Days Sales Trend:

Year

2008

2009

2010

2011 (Latest QTR)

Days Sales Out.

58.24

40.46

40.46

40.46

Gross, operating, and pre-tax margins all look great. In particular, the firm is currently working with a strong operating margin of 30.4% (ttm) and has been able to increase it over the years. We love to see a trend like this because it illustrates the firm is finding greater economies of scale and capitalizing on its potential. It really should come of little surprise then that the firm increased its first quarter 2012 EPS estimate to at least $0.30 from a range of $0.08-$0.11. That increases projected earning by at least 172%. The fact that the firm would even come out with a target that high surprises us, but the firm must be confident that it’s in the deck of cards.

Profitability Trends2008

2009

2010

2011 (Latest QTR)

Gross Margin

37.8%

39.7%

40.2%

42.0%

Op. Margin

19.23%

26.53%

25.45%

30.40%

This is probably a boring subject to some investors, but seeing the firm's inventory on hand ratio decrease from 2010 to 2011 is a good sign to us. It means that SOLR is moving its inventory more quickly off the shelf and that it has less working capital tied up in inventory. The firm is expecting an increase in its backlog up to $1.6B from $1B (a 60% increase), which demonstrates that it’s gaining more confidence with its customers in relation to production capabilities and inventory management.

Conclusion

The firm looks to be taking the necessary steps to sustain a high growth rate for the foreseeable future and this makes us confident in rating the firm a Buy. Finally, we realize that the global economy remains fragile, but SOLR has been able to sustain impressive numbers throughout the recession and into the recovery.

Source: GT Solar's Sun-Scorching Potential to Go Higher