Canadian Solar Inc. Up 123% From March Low but Still Cheap

Canadian Solar Inc. Soared 123% From its March Low, but It's Still CheapCanadian Solar Stock a Cheap Underappreciated Solar Play

The solar segment is seeing some merger and acquisition activity following years of restructuring that is beginning to pay off. The world economy will get greener, despite what you may be hearing domestically.

A cheap solar stock that continues to look attractive is Canadian Solar Inc. (NASDAQ:CSIQ). The company has a broad global footprint in over 150 countries. (Source: “Investor Relations,” Canadian Solar Inc., last accessed August 10, 2020.)

CSIQ stock traded at a 52-week high of $26.72 on August 7, up 123% from its March low.

On the below chart, note the bullish golden cross pattern (the 50-day moving average breaking above the 200-day moving average) and the subsequent breakout. The move was triggered by the company’s solid second-quarter results.

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Chart courtesy of StockCharts.com

But despite its upward move, Canadian Solar stock remains cheap and likely has higher gains on the horizon.

Next up on the chart for CSIQ stock is resistance at $26.00 to $35.00. At those price levels, Canadian Solar would still be inexpensive.

Consider that Canadian Solar Inc. has a market cap of almost $1.5 billion. Compare that to its 2019 revenue of $3.2 billion, its estimated 2020 revenue of $3.6 billion, and its estimated 2021 revenue of $4.3 billion. (Source: “Canadian Solar Inc. (CSIQ),” Yahoo! Finance, last accessed August 10, 2020.)

That means the company’s market cap is a mere 0.3 times its estimated 2021 revenue.

My Bullish Argument for a Higher CSIQ Stock Price

While the COVID-19 pandemic is ongoing, Canadian Solar is chugging along. What the company needs, however, is some consistency in its revenue growth after five years of relatively flat revenues.

Fiscal Year Revenues (Billions) Growth
2015 $3.5
2016 $2.9 -17.7%
2017 $3.4 18.8%
2018 $3.7 10.4%
2019 $3.2 -14.5%

(Source: “Canadian Solar Inc.MarketWatch, last accessed August 7, 2020.)

There is some optimism, but of course the impact of the pandemic poses uncertainty.

As mentioned earlier, Canadian Solar Inc. is estimated to ramp up its revenues by 13.3% to $3.6 billion this year and by 18.9% to $4.3 billion in 2021. (Source: “Canadian Solar Inc (CSIQ),” Yahoo! Finance, op cit.)

At the same time, Canadian Solar has been generating positive earnings before interest, taxes, depreciation, and amortization (EBITDA) and strong earnings per share (EPS) on a generally accepted accounting principles (GAAP) basis.

Fiscal Year EBITDA (Millions) Growth
2015 $336.2
2016 $146.5 -56.4%
2017 $321.1 119.2%
2018 $449.4 40.0%
2019 $427.0 -5.0%

(Source: MarketWatch, op. cit.)

Fiscal Year GAAP Diluted EPS Growth
2015 $2.93
2016 $1.12 -61.8%
2017 $1.69 50.9%
2018 $3.88 129.6%
2019 $2.84 -26.8%

(Source: MarketWatch, op. cit.)

Despite the hiccup in 2019, Canadian Solar Inc. is expected to report increased earnings of $2.89 per diluted share this year, followed by $3.35 in 2021. (Source: Yahoo! Finance, op. cit.)

A bright spot for the company was its ability to become free-cash-flow-positive in 2018 and 2019.

Fiscal Year Free Cash Flow  Growth
2015 -$345.6 Million
2016 -$1.3 Billion -261.2%
2017 -$346.2 Million 72.3%
2018 $74.0 Million 121.4%
2019 $138.7 Million 87.5%

(Source: MarketWatch, op. cit.)

Analyst Take

The COVID-19 pandemic casts uncertainty on the global economy, but Canadian Solar Inc.’s share price still looks affordable. As of this writing, Canadian Solar stock trades at about seven times its consensus 2021 diluted EPS estimate.

I’m bullish on the global push toward a greener environment, and I view solar stocks like CSIQ stock as being able to reap the benefits.