Solar stocks have been crushed ever since the stock market meltdown in 2008. In late 2011 and early 2012 they have taken another hit as there has been a significant cutback in subsidies and overcapacity for the new demand equilibrium. However, there is some upside to this story. Just in an article last week, Bloomberg reported that solar companies will dominate clean-energy mergers. What this means for Yingli Green Energy (YGE) and other solar stocks is that they may be in play and that should set a floor for solar stocks, at least the ones in good financial positions.
The story for YGE doesn't look as promising as only one of the metrics suggests that the stock is undervalued. And that one metric is the trailing valuation, a valuation metric that for all solar stocks comes back as undervalued. There are definitely some values out there for solar companies, the ones that survive should set themselves up for good positions as companies will exit the industry and plants will be closed down. However, YGE isn't that company. Below is an in depth look at the valuation metrics and stock chart.
Valuation: Yingli Green Energy's trailing 5 year valuation metrics suggest that the stock is undervalued as all of the metrics are below their respective 5 year averages. Yingli Green Energy's current P/B ratio is 0.7 and it has averaged 2.4 over the past 5 years with a high of 9 and low of 0.3. Yingli Green Energy's current P/S ratio is 0.2 and it has averaged 1.9 over the past 5 years with a high of 7.9 and low of 0.2.
Price Target: The consensus price target for the analysts who follow Yingli Green Energy is $4. That is upside of 16% from today's stock price of $3.46 and suggests that the stock is fairly valued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.
Forward Valuation: Yingli Green Energy is currently trading at about $3 a share with analysts expecting EPS of $0.09 next year for a forward P/E ratio of 38.4. Taking a look at the company's publicly traded comparisons will give us a better idea of the stock's relative valuation. Trina Solar (TSL) is currently trading at about $7 a share with analysts expecting EPS of $0.6 next year for a forward P/E ratio of 10.9. MEMC Electronic Materials (WFR) is currently trading at about $3 a share with analysts expecting EPS of $0.61 next year, an earnings increase of 455% y/y, for a forward P/E ratio of 5.7. First Solar (FSLR) is currently trading at about $18 a share with analysts expecting EPS of $3.94 next year for a forward P/E ratio of 4.6. The mean forward P/E of Yingli Green Energy's competitors is 7 which suggests that Yingli Green Energy is overvalued relative to its publicly traded competitors.
Earnings Estimates: Yingli Green Energy has beat EPS estimates 1 times in the past 4 quarters. The company's EPS figures have come in between -16 cents and 8 cents from consensus estimates or about -800% to 28.6% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a wide margin which suggests that the stock may experience upside/downside from earnings surprises.
Price Action: Yingli Green Energy is down 70.4% over the past year, underperforming the S&P 500, which is up 5.1%. Looking at the technicals, the stock is currently below its 50 day moving average, which sits at $3.78 and below its 200 day moving average, which sits at $4.45.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.