Two-and-a-half years ago, I wrote a commentary in which I suggested that Vestas Wind Systems (OTCPK:VWSYF) was not only the best wind energy stock, but possibly the best green technology stock of them all. As I pointed out, it was heavily represented in various green funds - it was the largest constituent of at least one of these - it was big, it enjoyed a dominant market position and it was very profitable.
Since then, the Danish company's profits and share price have tanked, its market share is being threatened by fast-rising Chinese competitors and the latest news is that it is being sued by an institutional investor who alleges it issued false and misleading statements concerning its financial outlook. Is it still the best?
The rapid rise of several Chinese wind turbine manufacturers has dented Vestas. In 2010, it only just maintained its number one position in the global wind turbine market, with a 12 per cent share (down from 12.5 per cent in 2009) of the total 35.8 GW installed (down from 38.6 GW in 2009).
China's Sinovel rose to the number two position with 11.1 per cent (up from 9.2 per cent), with GE slipping to third, with 10 per cent (12.4 per cent in 2009), and China's Goldwind just slightly behind, also with around 10 per cent (7.2 per cent in 2009).
Also looming is a long-term threat from fast-rising Korean shipbuilders, who, faced with growing competition from Chinese rivals and a global oversupply of new ships, are seeking to diversify. For example, Daewoo Shipbuilding and Marine Engineering has announced an aggressive goal of generating 30 per cent of its revenues from wind energy by 2020. Samsung Heavy Industries says it believes it can achieve annual wind turbine sales of $2.4 billion by 2015.
Problems with the nuclear reactors in Fukushima have provided a bounce to many alternative energy companies. This may prove to be short-lived. Nevertheless, there are signs that the problems at Vestas may be near the bottom, and at current prices, I would be a cautious buyer of the shares.
The best news is that the slowdown in wind turbine demand resulting from the credit squeeze of 2008-09 appears to have worked its way through the system. According to the Global Wind Energy Council, 2010 saw a 7 per cent worldwide decline in new installations from the previous year, to 35.8 GW. However, the Council is forecasting a 16 per cent jump to 41.4 GW in 2011, with further steady annual rises to 60.5 GW in 2015.
The Council also notes that, according to calculations from Bloomberg New Energy Finance, new investment in wind power actually rose 31 per cent in 2010 to $96 billion, which will translate into actual projects in 2011 and beyond. In particular, a recovery is expected in the US, together with further strong growth in Asia.
Vestas itself has seen order inflow surge during 2010, after the crash of the previous year. In 2008 it received orders totaling 6.02 GW, but this figure slumped to just 3.07 GW in 2009. Last year the figure was 8.67 GW. It is forecasting 7 to 8 GW for 2011.
In December 2010, the company had an order backlog worth 7.7 billion euros, compared to 5.4 billion euros in December 2009.
In addition, the company says that, contrary to much media speculation, it has not been forced to slash prices to remain competitive. In 2010, it received an average of 1.01 million euros per megawatt - including a jump to 1.23 million euros in the fourth quarter - only slightly less than the average 1.03 million euros in 2009.
Nevertheless, the buoyant outlook needs to be tempered with the realization that the company's operations are still very much centered on Europe, while the booming Asian region represents less than 20 per cent of business. Vestas may still be a technological leader in China, and is the fourth-largest turbine supplier in the country - behind Sinovel, Goldwind and Dongfang Electric - but the local companies are growing faster as their technology advances.
Yet, for the time being at least, Vestas remains both a market and a technology leader in a dynamic global industry that seems set for renewed short-term and long-term growth. It certainly remains among the best.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.