Solorfun Power: When Markets Are Irrational

BREAKING NEWS. The world has an enegry crisis. The price of oil is rising. The sun provides more potential energy on a daily basis than fossil fuels do in a year.

CONVENTIONAL WISDOM. If something is appears too good to be true, it generally is. Eventually solar panels will become a commodity (think computer chips - Intel / AMD) and prices will find their equillibrium (think calculators, cell phones, VCRs) levels.

But when will solar panels become commodities? That is the $64,000 (for us baby boomers) questions.

There have been many excellent blogs and postings regarding the solar industry to include detailed analysis of the industry as a whole as well as specific companies. I applaud the efforts of those posters and they should be commended for their contributions.

I am making no attempt to duplicate or question their work products.

I am invested in Solorfun Power (SOLF). Don't ask me why I made my initial investment about a year ago. If I gave you an honest answer you would probably stop reading this right now .... and I would not blame you.

But for now  - and the past year or so - I have done fairly extensive analysis of the company and am very fearful that maybe, just maybe ...... this may be too good to be true.

Before I proceed further, a few items related to disclosure. I made a few bucks along the way as an accountant (among other pursuits) and a college proffessor teaching that same subject (and a few others). Check my bio if you wish. As a result, I have made certaind adjustments to the published financial statement of SOLF (most recently as at March 31, 2008).

On the profit and loss side, I exclude R&D expenses. These are not expenses, they are investments! I do not believe in Goodwill. Any classification that includes the word "deferred" is a figment of an accountant's imagination. Income taxes are recorded ... sometimes paid .. sometimes adjusted .. sometimes "deferred." Currency translations are most "cool" but are as relevant as the number of yen to the US dollar after converting to the Italian Lira (oops .. Italy went to the Euro. Sorry!)

Based on the above, here are a few stats for your consideration. Revenues are growing 6 fold (I do not use percentages .. I get easily confused when a percentage increase if over 100%.) Per my definition of Operating Profit, a 7+ fold is occurring.

The current ratio is 2.5. Days inventory on hand is declining to 68.3 days .. still a bit high but heading in the right direction. DSO (Days Sales Outstanding) in Accounts Receivable is a problem .. both in trend and absolute amount ... at 68 days, Cash and advances as a percentage of Bank Borrowings in 91%.

Enough. Sorry to bore you.

I think this stock is a fantastic short and intermediate BUY. I am not a trader. A very small percentage of my portfolio (and net worth) is at risk here. I am 60 years old and 10 years from now I may be "pushing daisies" in the words of my departed father .... but once in a while markets are irrational .. and this may just be one of those times.

Should this post generate any interest, I would be delighted to send my spreadsheet analysis to any and all interested parties.

In Espanol, Via Con Dios!

Disclosure: Author holds a long position in SOLF

 

 

 

Comments

[User 175127:]

I would like to see your spreadsheet analysis.

2008 Jul 03 09:10 AM

[gebby:]

yea i think all solars should be zero...... greenies dont get IT there is no global warming just ask rush and sen inhofe and that one scientist. besides it is really just gods plan for the end of the world. just ask the bible belt. so there is no investment value here. that's for sure...NOT

2008 Jul 03 10:13 AM

[zink99:]

great article. would like to see spreadsheet.

2008 Jul 03 10:37 AM

[skwestorange:]

Not sure such generalizations by other commenters are justified. Yes, most if not all of them seem priced for perfection. But leaders such as STP and SPWR may be eventual winners when the Govt subsidies come out altogether. I also think that technologies other than polysilicon may have tough time going forward due to material shortage and poor efficiencies. I would like to see the spread sheet if I may.

2008 Jul 03 11:53 AM

[User Norris:]

Interesting take on solars. Would like to see your spreadsheet too.

2008 Jul 03 02:16 PM

[Robert Nilsen:]

I am a new contributor answering my own post and wish to say thanks for the feedback. Being new I have no idea how to get in touch and send you the spreadsheet but I would be delighted to do so if one of you can tell me how.
Enjoy the 4th!

2008 Jul 03 04:50 PM

[skwestorange:]

I think that if you provide a link to your website and have it available there for download it should work. If you don't have a website (like me), then you could probably use yousendit.com to upload your file and post the link in your comment on this site. That should work too.

2008 Jul 03 05:42 PM

[je:]

I would like tosee a spredsheat also. I would also like to see a comparison with another stock with similar revenue growth and P/Esuch as YGE

2008 Jul 03 06:16 PM

[User 211614:]

I've succeed in earning the bucks from this stock in May,and I'll have an eye on the stock.
This article is great.Thank you.
To expect your spreadsheet analysis.

2008 Jul 04 08:40 AM

[walker6713:]

Good article, I am long also. Sales are up now, that is nothing compared to what is coming. The energy crunch is of such magnitude, that we will need everything we can get.

2008 Jul 04 08:47 PM

[10Q Detective:]

Well-researched, I hate to pop the bullish bubble. To wit:

there is another squeeze going on here, an alleged scam i see developing between SolarFun founder Lu and GCL

To wit:

1. Contrary to statements made by news hounds and industry watchers, the GCL contract will not help will help Solarfun meet expected shipments in the range of 160-180 megawatts for 2008. Look closely, for the contract is just a restatement of an existing — and unfulfilled — contract!

industry.bnet.com/ener.../

2. Founder Yonghua Lu is powering up only his own bank accounts--will all collective monies common from naive ADS shareholders.

industry.bnet.com/ener.../

My Best & Stay in touch!

David J Phillips - Editor, 10qdetective.blogspot....
Contributing Energy Analyst
CNET/BNET

2008 Jul 11 05:32 AM