Why You Should Buy This 10 Bagger’s Dip

1241 words - 5 pages

After the major selloff throughout 2011 and 2012, the solar industry has skyrocketed over the past year with as many as 4 companies in the top 5 of the best performing stocks of 2013. Canadian Solar (CSIQ) led the way with nearly four-digit return during the year. That’s right, the company was a 10-bagger (or nearly 1,000%) prior to its fourth quarter earnings release, earlier this month. After a “seemingly” disappointing quarter, shares have dropped by over 21%. Is the drop an opportunity to buy or an indication to sell?

A strong pipeline
The recent earnings release may have failed to impress the investors, but the company has a promising pipeline. Apart from Europe, where the company has ...view middle of the document...

3 GW, mostly in low-risk countries. In addition, the company’s has early-stage projects pipeline of over 3.2 GW. Adding them up, the company has a very strong pipeline of 4.5 GW that would translate in to revenues in upcoming quarters.

Soaring revenue and margins
After revenues and margins slid quarter-after-quarter for nearly two year until late-2012, both improved appreciably last year and returned to the pre-selloff levels. As a matter of fact, the revenue and gross margins exceeded company’s guidance in the fourth quarter of 2013. The company reported solar module shipments of 612 MW, comfortably beating the shipment guidance of 480-500 MW and the third quarter shipments of 478 MW. As a result, revenue increased to $519.47 million, up by a whopping 76.1% from 4Q12 and 5.82% from 3Q13. The revenue piped the consensus analysts’ estimate of $512.95 for the quarter. The company achieved gross margin of 19.5% in the quarter, compared to 5.04% in the same quarter last year.

For full-year 2013, the company’s shipments rose to 1,894 MW, compared to 1,543 MW in 2012, maintaining its position as the world’s third-largest manufacturer of solar modules. Net revenue rose by 27.77% to $1,654.4 million for the year, helped by a 28.6% increase in revenue from the total solutions business.

Return to profitability
Among the tier-1 Chinese PV manufacturers, many operate at a loss, and Canadian Solar was no different about two quarters ago. The company reported negative earnings for over two years before bouncing back profitability in the third quarter last year and reinforcing the notion in the fourth quarter. Diluted earnings per share fell from $0.56 in Q3 to $0.39 in Q4, missing analysts’ estimate of $0.43 for the quarter. However, when you look at full year results, the gains are stunning. The company reported per-share earnings of $0.63 for the year, compared to a per-share loss of $4.52 in 2012. Sure enough, these may not be exciting numbers considering the recent hype around the stock, but the fact that the expectations were already high amid strong performances of late did more damage to it than missed-earnings. Moreover, failing to meet estimates for one quarter shouldn’t diminish company’s achievements for the year.

Cost-cutting leverage and improving cash flows
The company has a distinct cost advantage over its peers. To lead the product race, it focuses on R&D and evaluates new technologies at its cell efficiency research center in Suzhou, China. The low-cost manufacturing offers...

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