Solar Industry After Buffett's Big Buy: A New Look At 5 Solar Stocks

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Includes: BRK.A, FSLR, JKS, SPWR, TSL, YGE
by: Investment Underground

By H.D. Carver

It was recently announced that the ubiquitous Warren Buffett has, through a Berkshire Hathaway Inc. (NYSE:BRK.A) subsidiary, MidAmerican Energy Holdings Company, invested some $2 billion in the purchase of a solar farm. Will this be the proverbial shot in the arm needed to reenergize the sluggish green energy industry or will the effect be similar in impact to Buffett’s Bank of America (NYSE:BAC) investment. My crystal ball’s in the shop, so let’s just take a look at some of these green energy stocks and see what’s happening.

Beginning with First Solar, Inc. (NASDAQ:FSLR), the beneficiary of Buffett’s recent largesse, we have a mid cap ($3.95 billion) trading at about $45.67, which is only 7.5 times trailing twelve month earnings. The price/earnings growth ratio is decidedly bright at 0.38 and the fractional price to book of 0.98 combines to delight any value investor. First Solar’s return on equity is an almost acceptable 14.46%. Quarterly year-over-year revenue growth is a healthy 26.10% coupled with a decidedly positive quarterly year-over-year earnings growth of 11.10% add up to make me wonder why Warren didn’t throw in another $2 billion and buy the company—just kidding! FSLR’s debt-to-equity ratio is a surprisingly low 15.15 and the harbingers of financial strength continue to manifest in the current ratio, which is a substantial 3.25. Well…now that I’ve sold myself on adding this one to my portfolio, did FSLR get the Buffett bounce? No, in fact, FSLR closed out December 7, 2011, more than $1.00 below its open, a micro Pearl Harbor if you will; then its share price continued to plummet over the next 2 trading days. Is Buffett losing his clout or do the lessons of Solyndra have too much momentum for even Warren to overcome? The real answer, of course, is in the harsh economic realties of the solar power industry.

SunPower Corporation (NASDAQ:SPWR) is a small cap ($657.66 million) trading at a modest $6.57 per share, approximately. The price/earnings ratio is 16.83 and the price/earnings growth ratio is 3.55. SPWR’s price to book is, like First Solar’s, fractional at 0.57. The return on equity is -28.51% but quarterly year-over-year revenue growth is positive at 28.10%. No figure is available for quarterly year-over-year earnings growth but a peek at the quarterly income statements show losses in the past 3 quarters. The debt/equity ratio is tracking high at 82.91, but tempered by decent current ratio of 1.91. Even the news of SunPower’s deal to supply NRG Energy, Inc. (NYSE:NRG) with 54 megawatts of solar power technology is not likely to drive this stock forward in any meaningful way.

Yingli Green Energy Holding Co. Ltd. (NYSE:YGE) is a small cap ($669.16 million) trading at about $4.44, which is just over 4 times trailing twelve month earnings. YGE’s price/earnings growth ratio is a promising 0.68 and price to book is in the bargain basement at 0.49. The company’s return on equity is 11.55%. Quarterly year-over-year revenue growth impresses at 29.70% but quarterly year-over-year earnings growth is deeply negative at -139.03. The cash flow statements reveal that borrowings doubled from 2009 to 2010 and inventories plummeted over the same period. Unfortunately, nothing current is available for review. The current ratio of 1.03 suggests YGE is holding its own. The stock is trading pennies ahead of the 50-day moving average and about 25% below the 200-day moving average but I am not persuaded to invest at this point in time.

Trina Solar Limited (NYSE:TSL) is another small cap ($546.62 million) trading at about $7.76 per share with a trailing twelve month earnings ratio of 3.16. It has a frightening price/earnings growth ratio of -56.82 and a fractional price to book of 0.46. Return on equity is a dead-on at 15.44%. Quarterly year-over-year revenue growth is -5.20 and following that, I found the quarterly year-over-year number to be unavailable. TSL’s debt/equity ratio is high at 82.96 but the current ratio of 1.98 looks good. TSL is trading slightly above its 50-day moving average and 40.31% below its 200-day moving average of $13.00. I’ll have to pass this one by for now.

JinkoSolar Holding Co., Ltd. (NYSE:JKS) is yet another small cap ($125.19 million) and is trading at about $5.40 per share. The price/earnings ratio is an incredibly low 1.40 with a corresponding price/earnings growth ratio of 0.14. JinkoSolar’s price to book is 0.24. The company is posting a strong return on equity ratio of 39.32%. Quarterly year-over-year revenue growth is pegged at 23.80 and quarterly year-over-year earnings growth is -73.80 and if that isn’t discouraging enough, how about the 114.95 debt/equity and 0.95 current ratios. Though trading below its 50-day moving average by 23.08% and 62.68% below its 200-day moving average I find this one to be no bargain.

Clearly, this fiercely competitive industry has been complicated by US/China trade issues. The solar, or photo voltaic industry, thanks in part to Solyndra, has also become a political football on the domestic front. Until these issues are put to rest, a lot of investment dollars will remain sidelined. On a positive note, the end result is very likely to be a more affordable energy alternative than we might have otherwise enjoyed.

I have no doubt that this industry has a fantastic future. The key for the savvy investor lay in finding the right company at the right price. While that is true for any investment, it will be particularly tricky with solar. I think it’s prudent to sit by for the time being, learn all you possibly can about the players and be prepared to move when you feel comfortable.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.