Canadian Solar: Opportunity in Multiple Contraction from Dilution 13 comments
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Earlier this week Canadian Solar (CSIQ) increased the mid-range of their revenue guidance by 13%. Then, that same evening, they announce they were diluting shares by offering 3.5 Million new ones at $34 each. A significant dilution. The shares surged, then have since pulled back - appropriately.
But take a look at this, the last four quarters earnings are, according to yahoo finance, in order:
$-0.11 $0.02 $0.20 $0.61
Analysts estimates for the 2nd and 3rd quarter of this year are:
$0.45 $0.55
CY estimates are $2.18 and next year’s estimates are $3.52
Well, talking pre-dilution, and considering the raised guidance they should at least meet the previous estimates (made before the raised guidance)… this is going to mean, within the next four months, the ttm eps are going to go from $0.72 to (hopefully) at least $1.81. More than cutting the P/E ratio in half, if the stock stayed flat.
After the dilution that $1.81 figure falls to $1.61. The current P/E is about 50. Even if the multiplier fell to 25, it’s still a $40 stock looking at the ttm, four months could bring. Obviously, provided they have a good four months and maintain the positive outlook. My point isn’t really that the PE could be halved, and share holders still win, it’s that within the next two quarters this stock is going to start showing up on allot of stock screens. I mean, replacing that $-0.11 with a $0.45 quarter, will get this stock noticed.
I would also like to comment on the pull-back due to dilution. At the time of writing the stock was at $31.70, and before the announcement, the stock closed at $38.20.
At $38.20 CY EPS estimates are $2.18 and next year analysts see $3.52. After the math from the dilution, CY EPS estimates become $1.93, and $3.12. That means this recent drop of $6.50, meant the ttm PE of 53 has fallen to 49.7, the CY PE has fallen from 17.5 to 16.4, and FPE from 10.9 to 10.2. Clearly, either the street over-reacted to the upped revenue guidance in the first place, OR, the street over-reacted to the dilution and the shares are both price point cheaper AS WELL AS fundamentally cheaper. I should also add, the company is fiscally stronger after a dilution too.
Bottom line, the stock pulled back 17%, but should have only pulled back 11.3%, assuming it was fairly valued at $38.20.
Update: Practically as I was writing this, some other news was hitting the wires.
Disclosure: I wrote $35 puts for July, and will likely be assigned the long underlying position tomorrow.
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This article has 13 comments:
Long CSIQ.
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Disclosure (by author): I wrote $35 puts for July.
That means the author is buying.
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"Wrote $35 purts" means he sold $35 put options.
There is a well-known strategy: "When one likes a particular stock, one sells 'put' option of that stock".
Note: Personally, I don't do any options. But I do know a little bit about options.
The author likes the stock, and he is buying the stock. When the options buyer exercises the option, the author will have bought the CSIQ - but at a few dollars less than $35 (because the author collected the "Put Option's Premium".
blogs.barrons.com/tech.../
online.barrons.com/art...
Glad you liked my math, and view. Sorry, I was a little scattered in my writing.
User 226214 - My main point was, the stock is about to get noticed, and look really cheap, if they can hit the eps number this quarter. It will be crucial. I am bullish, and now long, as the other users pointed out. Another cool couple of points for the bulls, is that short interests is at 30%, and options indicate forward looking traders have an estimate for fair value by Aug/Sept/Oct to be between $35 and $40. Not much downside left, unless something unexpectedly bad comes up - but that can happen to any company.
They are expanding their facility to 800mw. So we might see a huge increase.