Canadian Solar Stock: A Double on Horizon as Green Energy Drives Global Growth

Canadian Solar StockCanadian Solar Inc. Benefits From Push for Green Energy

There is simply no denying that the global climate is changing, and the concerted push for greener energy is a strong tailwind for green energy stocks. One green energy stock with high long-term risk/reward prospects is small-cap Canadian Solar Inc. (NASDAQ:CSIQ), a provider of solar energy solutions to over 90 countries.

Better yet, CSIQ stock is cheap right now. Canadian Solar has a market cap of around $1.2 billion, but the company has trailing 12-month sales of $3.2 billion. This implies a trailing price-to-sales ratio of only 0.4 times, and it’s even cheaper looking ahead.

In my view, solar energy stocks like Canadian Solar stock are undervalued, given that the majority of these companies have cleaned up their debts and have improved their operating efficiencies.

The recent upside moves in green energy stocks indicate there is a rise in positive sentiment toward companies like Canadian Solar Inc.

Advertisement

We have been seeing steady growth in the green energy sector in Europe and high-polluting countries like China and India. China is the top solar energy market in the world, while India has committed billions to ramping up its solar sector.

A recent report by Statista Inc. estimates the size of the global solar energy market to be as high as $422.0 billion in 2022, compared to $86.0 billion in 2015. (Source: “Value of the solar power market worldwide in 2015 and 2022 ,” Statista Inc., last accessed February 28, 2020.)

A look at the CSIQ stock chart shows an attractive risk/reward opportunity. It’s trading around the midpoint of its 52-week range and is down more than 50% from its February 24, 2014 price of $44.50.

Chart courtesy of StockCharts.com

For long-term investors, Canadian Solar stock could return strong gains. If the stock can hold, it could launch a sustained upside move toward resistance at $26.00 to $35.00.

Why I Love the Prospects for CSIQ Stock

The five-year revenue picture for Canadian Solar Inc. shows growth in four of the five years, and record revenue 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,” MarketWatch, last accessed February 28, 2020.)

Canadian Solar is expected to report a 16% contraction in its 2019 revenues to less than $3.2 billion. But then its revenues are estimated to rise 28% to $4.0 billion in 2020. (Source: “Canadian Solar Inc. (CSIQ),”Yahoo! Finance, last accessed February 28, 2020.)

The company has also been generating strong 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 40.0%

(Source: MarketWatch, op. cit.)

Canadian Solar is highly profitable, with earnings-per-share (EPS) growth in three of the last five years.

Fiscal Year Diluted EPS 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.)

For 2019, Canadian Solar is expected to report a decline in profits to $2.27 per diluted share, then follow that with a jump to $3.02 per diluted share in 2020. (Source: Yahoo! Finance, op. cit.)

Analyst Take

The bottom line is that Canadian Solar stock is currently cheap. At the time of this writing, CSIQ stock trades at only 6.8 times its estimated 2020 EPS and slightly above book value. Furthermore, the market cap of Canadian Solar is 0.3 times the company’s estimated 2020 revenues.

If things pan out for the solar energy sector, we could see this stock double in value.