By Jonathan Yates
Despite Warren Buffett recently buying two solar power companies, Chinese companies in the industry such as LDK Solar Co. (LDK), JA Solar Holdings Ltd (JASO), and Hanwha Solar One Ltd (HSOL) have not come close to recovering losses for the year.
Solar power in China is huge. As detailed in a recent article in the Financial Times by Leslie Hook and Ed Crooks, “The way the world turns,” in just a decade the solar industry in China has become the world’s largest.
According to the piece in the Financial Times by Hook and Crooks, “China has remade a global industry that is estimated last year to have attracted $243 billion in finance and investment.”
This has not shown up in the stock performance of Chinese solar power companies. LDK Solar Power is off more than 50% for the year. JA Solar Holdings is down about 80% for 2011. Hanwha SolarOne Ltd is lower for the year by more than 80%.
The balance sheets of each of these companies are now very impressive with low price-to-earnings ratios, single digit price-to-book ratios and single digit price-to-sales margin.
These are Warren Buffett-type financials.
Admittedly, growth in the Chinese solar industry has been driven by cheap labor, low rate financing, a huge home market and government support.
But the income statements will have to be augmented to match the balance sheets in attractiveness before investors like Warren Buffett take notice.