Why Canadian Solar Stock Could Be Worth $92, Up Five Times

Why Canadian Solar Stock Could be Worth $92, Up Five Times

Why Wait Until Black Friday for Canadian Solar Stock?

I don’t blame investors for not looking at solar stocks, given the apparent antagonism from the White House to the validity of climate change. I’m not going to debate climate change here, but the reality is that the world is moving greener, and shares of companies like small-cap Canadian Solar Inc. (NASDAQ:CSIQ) are dirt cheap, relative to their growth prospects.

The reality is that many solar companies have strengthened their balance sheets by ridding themselves of excessive debt and by increasing their operational efficiencies.

Canadian Solar stock is hovering below the midpoint of its 52-week range, well off from its range high of $25.89 to $44.50 in 2014. The price weakness presents an opportunity to add CSIQ stock.

The company, with a market cap of $1.0 billion, has a global footprint, with operations in 19 countries and sales in over 100 countries. Projects range from small to large utilities. (Source: “The Canadian Solar Difference,” Canadian Solar Inc., last accessed November 8, 2019.)

Canadian Solar stock’s valuation is ridiculously low, especially compared to the much bigger First Solar, Inc. (NASDAQ:FSLR).

Canadian Solar Inc. First Solar, Inc.
Forward Price/Earnings Ratio 5.2 14.3
Price/Earnings to Growth Ratio 0.1 0.6
Price/Sales Ratio 0.3 2.3
Price/Book Ratio 0.8 1.1

(Source: Yahoo! Finance, last accessed November 8, 2019.)

On all four metrics in the above table, CSIQ stock is more attractive than FSLR stock.

The below chart shows Canadian Solar stock facing resistance around $19.00, with an upper target of $26.00 to $35.00.

Chart courtesy of StockCharts.com

The Bull Case for CSIQ Stock

Canadian Solar Inc.’s revenues increased in four of the last five years and marked a five-year high in 2018.

Fiscal Year Revenues (Billions) Growth
2014 $3.0
2015 $3.5 17.1%
2016 $2.9 -17.7%
2017 $3.4 18.8%
2018 $3.7 10.4%

(Source: “Canadian Solar Inc.MarketWatch, last accessed November 8, 2019.)

Watch for some minor financial weakness this year, with Canadian Solar expected to see its revenues fall by almost three percent to $3.6 billion, prior to rallying by more than 14% to $4.1 billion (or even as high as $4.4 billion) in 2020. (Source: “Canadian Solar Inc. (CSIQ),”Yahoo! Finance, last accessed November 8, 2019.)

Canadian Solar is also profitable, delivering positive earnings before interest taxes, depreciation, and amortization (EBITDA).

Fiscal Year EBITDA (Millions) Growth
2014 $448.9
2015 $336.2 -25.1%
2016 $146.5 -56.4%
2017 $321.1 119.2%
2018 $449.4 40%

(Source: MarketWatch, op. cit.)

Profits came in at a four-year high in 2018, but they are estimated to moderate to $3.12 per diluted share in 2019 before rising to a consensus $3.28—or as high as $4.01—in 2020. (Source: Yahoo! Finance, op. cit.)

Fiscal Year Diluted Earnings Per Share Growth
2014 $4.11
2015 $2.93 -28.7%
2016 $1.12 -61.8%
2017 $1.69 50.9%
2018 $3.88 129.6%

(Source: MarketWatch, op. cit.)

Analyst Take

The fact that Canadian Solar stock trades at a mere 4.2 times its high EPS estimate for 2020 means there is a major opportunity presenting itself to investors.

Consider that a doubling in the price of CSIQ stock still implies a price/earnings to growth (PEG) ratio of only 0.2. Further playing with the numbers, Canadian Solar Inc. would have to surge to $92.00 to make its PEG ratio in line with that of First Solar, Inc.