Why Canadian Solar Stock Is Worth a Double

Canadian Solar Stock
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Weak Canadian Dollar Doesn’t Mean Canadian Solar Stock Should Be Cheap

The solar industry is booming around the world as countries grapple with climate change (yes, it’s real, not fake news). But in the United States, the situation is unclear, given the current view from the White House.

Despite that, solar energy remains a growth area in the U.S., since I doubt states like California and New York will halt their climate goals. Even the oil-producing state of Texas is fully immersed in alternative energy, with major solar and wind power projects going ahead.

My bull thesis for the solar sector is based on the long-term potential of solar power, along with the fact that the majority of solar companies have metamorphosed into more efficient-operating companies characterized by stronger balance sheets.

The solar companies of today are not the same as they were a decade ago.

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A favorite solar play of mine is small-cap Canadian Solar Inc (NASDAQ:CSIQ), which has rallied off its 52-week low of $11.37 and is now within reach of its range high of $18.40.

Over the last month, Canadian Solar stock has outperformed, advancing 15.1% and coming close to breaking even this year.

While the name “Canadian Solar” may imply a domestic focus, the reality is that the company has operations in 20 countries and sales in more than 90 countries.

Canadian Solar is involved in projects varying from small residential jobs to large-scale commercial ones.

What intrigues me about Canadian Solar is its cheap valuation in contrast to another top solar play, First Solar, Inc. (NASDAQ:FSLR).

Simply compare the relative key metrics between Canadian Solar and First Solar and you’ll see why Canadian Solar stock is undervalued by the market.

Relative Valuation

Ratio

Canadian Solar

First Solar

Forward Price-Earnings

7.56 16.49
Price/Earnings to Growth 0.12

7.67

Price/Sales

0.25 2.57
Price/Book 0.86

0.94

(Source: “Yahoo! Finance,” last accessed December 3, 2018.)

The below chart shows the rally in CSIQ stock. The next upside hurdle is $19.00. A breakout could see Canadian Solar stock target $26.00 and $35.00.

Chart courtesy of StockCharts.com

Fundamentals Show Value in CSIQ Stock

Canadian Solar’s revenue picture shows relatively consistent growth, with its revenue more than doubling from $1.7 billion in 2013 to $3.4 billion in 2017.

Fiscal Year Revenue (Billions) Growth
2013 $1.7
2014 $3.0 79%
2015 $3.5 17.1%
2016 $2.9 -17.7%
2017 $3.4 18.8%

(Source: “Canadian Solar Inc.,” MarketWatch, last accessed December 3, 2018.)

The average estimate for Canadian Solar’s 2018 revenue is $2.7 billion, and the high estimate is $2.9 billion. The average estimate for Canadian Solar’s 2019 revenue is $2.3 billion, and the high estimate is $2.9 billion. (Source: “Canadian Solar Inc. (CSIQ),” Yahoo! Finance, last accessed December 3, 2018.)

The company also generates positive profits and earnings before interest, taxes, depreciation, and amortization (EBITDA).

Fiscal Year

EBITDA (Millions)

Growth

2013

$211.6
2014 $449.0

112.1%

2015

$343.2 -23.6%
2016 $146.5

-57.3%

2017

$321.1

119.2%

(Source: MarketWatch, op cit.)

Canadian Solar is turning a profit but needs to be more consistent.

Fiscal Year

Diluted Earnings Per Share

Growth

2013

$0.63

2014 $4.11

552.4%

2015

$2.93 -28.7%
2016 $1.12

-61.8%

2017

$1.69

50.9%

(Source: MarketWatch, op cit.)

Looking ahead, Canadian Solar is expected to earn $2.69 per diluted share in 2018—with a high estimate of $2.91—and $2.27 per diluted share in 2019—with a high estimate of $2.92. (Source: Yahoo! Finance, op cit.)

Analyst Take

The valuation of Canadian Solar stock is currently cheap, for whatever reason. But that could change. As shown by its comparison to First Solar, Inc., this stock is extremely attractive at its current price.

Even if CSIQ stock doubles in price, the valuation still wouldn’t look out of place.