Canadian Solar Stock Is Trading at a Big Discount to Expected Growth

canadian solar stock
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Canadian Solar Is Undeservedly Cheap

I view the current stock market malaise as potentially a “Black Friday” event for stocks. Of course, the situation could worsen if there is no resolution to the U.S.-China trade war and if bond yields ratchet higher. It’s always a difficult task to pick a bottom.

But the thing is, employing a strategy to add positions on weakness (as long as you’re willing to ride out the bumps and look to the long term) makes sense.

An area that I continue to see opportunities in is solar power, regardless of the notion that the Donald Trump administration doesn’t fully support efforts against climate change.

The reality is that we are not heading toward a coal power revolution or dumping high-tech alternative energy solutions. There are simply too many jobs in the alternative energy space.

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A small-cap solar technology stock that is delivering strong growth—but is way undervalued—is Canadian Solar Inc. (NASDAQ:CSIQ).

CSIQ stock is down about five percent this year but rallied 12.1% over the last trading week. At its current price level, CSIQ stock is still cheap.

Canadian Solar has operations in 20 countries, with sales to more than 90 countries. The company deals with both small- and large-scale commercial solar energy projects.

On the chart, CSIQ is facing key resistance around $19.00. A break could see Canadian Solar vault higher toward $28.00 and $35.00.

Chart courtesy of StockCharts.com

The Proof Is in the Numbers for CSIQ Stock

Canadian Solar’s five-year revenue trend saw its revenue double from 2013 to 2017. There was revenue growth in three of the last four years.

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 November 19, 2018.)

Canadian Solar is estimated to have revenue growth of 8.3% to $3.7 billion in 2018. Revenue is then expected to hit $4.0 billion in 2019, with a high estimate of $4.7 billion. (Source: “Canadian Solar Inc. (CSIQ),” Yahoo! Finance, last accessed November 19, 2018.)

In addition, Canadian Solar generates strong earnings before interest, taxes, depreciation, and amortization (EBITDA) and profits.

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.)

The company’s earnings per share (EPS) trend is positive, which bodes well for CSIQ stock.

Fiscal Year Diluted EPS 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.)

Canadian Solar is estimated to earn $1.61 per diluted share this year, but that number could end up being as high as $1.98. In 2019, Canadian Solar could report $2.36 per diluted share at the high end. (Source: Yahoo! Finance, op cit.)

CSIQ had positive free cash flow (FCF) in 2013 and 2014 but had negative FCF in the past three years as the company worked on growing and strengthening its position.

Fiscal Year Free Cash Flow (Millions)
2013 $88.7
2014 $169.4
2015 -$345.6
2016 -$1,250
2017 -$346.2

(Source: MarketWatch, op cit.)

Analyst Take

Canadian Solar is a sound play on the global solar segment. The company is producing some strong fundamentals that deserve a higher stock price.

The fact that CSIQ stock trades at only 8.8 times its consensus 2019 EPS and almost 6.8 times its high estimates implies a potentially strong upside move.

The price/earnings to growth (PEG) ratio of 0.43 is a bargain, and CSIQ stock trades below its book value.