We all know about the current antagonism towards China and the relative undervaluation of Chinese stocks listed on U.S. exchanges. But there are situations that are extremely intriguing and worth a look. Take the case of small-cap solar, Chinese play JinkoSolar Holding Co., Ltd (NYSE:JKS), down 5.4% this year despite the spike in solar stocks.
So, while the market is clearly undervaluing JinkoSolar stock, my view is that this leading solar play in China and Europe is way too cheap to ignore.
JKS is a vertically integrated solar play. This means JinkoSolar Holding Co., Ltd develops and manufactures the solar products needed in the building of solar projects.
While the key market is China (the top solar market in the world), JKS also operates in North America, Europe, Latin America, Asia, and the Middle East.
Just the fact that JinkoSolar is a key player in the booming Chinese solar market gives the company tremendous long-term upside.
The one-year chart shows JinkoSolar stock in a solid uptrend since the March low. Note the bullish golden cross—a technical signal pointing to additional gains.
Chart courtesy of StockCharts.com
Strong Fundamentals & Cheap Valuation Support JKS Stock
Revenues grew in the double digits in four of the last five years to a record $4.3 billion in 2019.
The compound annual growth rate (CAGR) for JKS revenue was a healthy 15% during this time frame.
|Fiscal Year||Revenue (Billions)||Growth|
(Source: “JinkoSolar Holding Co., Ltd,” MarketWatch, last accessed September 3, 2020.)
JinkoSolar is expected to continue the revenue growth at 19.7% to $5.1 billion this year, but contract 1.4% to $5.1 billion in 2021. But there are high estimates of $5.6 billion and $5.8 billion, respectively, for 2020 and 2021. (Source: “JinkoSolar Holding Co., Ltd (JKS),” Yahoo! Finance, last accessed September 3, 2020.)
While revenues grew, JKS also reported higher positive earnings before interest, tax, depreciation, and amortization (EBITDA) in four of the last five years, including a record in 2019.
|Fiscal Year||EBITDA (Millions)||Growth|
(Source: MarketWatch, op. cit.)
At the bottomline, JinkoSolar has steadily generated profits on a generally accepted accounting principles (GAAP) and adjusted basis.
|Fiscal Year||GAAP Diluted EPS||Growth|
(Source: MarketWatch, op. cit.)
For 2020, JinkoSolar is estimated to report an adjusted $3.37 per diluted share compared to $3.29 per diluted share in 2019, followed by $3.21 and as high as $4.82 per diluted share in 2021. (Source: Yahoo! Finance, op. cit.)
A major positive is that institutions have increased their buying of JKS stock. Institutional ownership is comprised of 153 institutions holding 66.74% of the outstanding shares. Compare this to 108 institutions owning 25.29% of the outstanding shares in December 2019. (Source: Yahoo! Finance, op. cit.)
JinkoSolar stock is worth a look given the cheap relative valuation. JKS stock trades at cheap 5.7 times its consensus earnings per share for 2021. A price/earnings to growth ratio of 0.68 implies an undervalued situation for JinkoSolar.
Perhaps it’s time to take a look at JinkoSolar stock, when the market appears to be underpricing JKS stock.