As Solar Plummets, Stocks Drop Below Book Value

by: Mark Henwood November 16, 2008 | about stocks: CSIQ / JASO / SOLF / SPWRA / TSL / YGE    

Mark Henwood

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Equities and commodities all fell during the week ending November 14th.  US REITs were particularly hard hit (RWR -18.5%).  For a complete summary visit this returns page. Sustainable energy also fell sharply with only 10 companies in our indices advancing.

Click to enlarge

SOLAR has experienced continued high volatility with a variety of downgrades occurring during the week.    On Wednesday the index hit its 52 week low and closed the week down 74.5% YTD.  

This huge adjustment has left  the market cap of our SOLAR index shrinking to USD 33.4 billion from a peak of over USD 110 billion.   Some of the US traded companies, Yingli (YGE), JA Solar (JASO), SolarFun (SOLF), Trina (TSL), and Canadian Solar (CSIQ), are trading below book value with trailing PE ratios ranging from 4.6 - 6.5. 

These price levels reflect a very negative outlook for profitability and growth at these companies.  The negative outlook is stemming from concerns about sales levels,  margins, and negative currency exchange movements.   

Some data is coming out allowing us to assess the current valuation levels.  In its conference call this week JA Solar (JASO) reduced its sales forecast in 2009 to between USD 1.5 - 1.7 billion and EPS to USD 0.90.   These numbers reflect a huge 75+% sales growth over expected 2008 sales of USD 849.5 - 878.9 million and a forward PE of 3.1 on Friday’s close.   Sunpower (SPWRA) also lowered its guidance for 2008 to EPS of USD 1.68, a forward PE of 15.2 on Friday’s close.   

Disclosure: Mark has a long position in JASO.

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This article has 17 comments:

  •  
    Nov 16 08:24 AM
    the pothole in solar will not last long. buy before the recovery establishes itself.
    Reply | Link to Comment
  •  
    Nov 16 08:42 AM
    I like the fact that solar is a good source of power. problem is in this environment everyone wants green they just want it at a much lower cost. Up front costs of solar are still too high to get the average joe involved. and that is what it will take to make solar worth while in USA. What is required the better gov. subsidies similar to what has been one in Germany. Who in there right mind will put in the system that will take close to 20 years to pay back the initial investment, as wells that investment will last only 20~25 years? I am not a tree hugger but I do thin we need more green energies. solar is part of it but the upfront costs need to be dealt with prior to it making it main street..
    mark
    Reply | Link to Comment
  •  
    Nov 16 08:45 AM
    jaso will rise and rise and rise from the ashes if Barron's and Forbes will let them........
    Reply | Link to Comment
  •  
    Nov 16 11:16 AM
    'They' - Barron's and Forbes et al have no real bearing on the economics of implementaion of the technology and susequent investment potential of these stocks. There is no value in speculating on the supposed influence of 'them'.
    Reply | Link to Comment
  •  
    Nov 16 11:33 AM
    Wind power stocks have also been slaughtered and the P/E of APWR will approach 3 which is unheard of for a $38 Dollar Stock price six months ago and now $5 today????

    is Wind Dead???? I dont think so!!! Obama is planning 15 Billion per year for renewables and WIND will lead the way!
    Reply | Link to Comment
  •  
    Nov 16 01:09 PM
    WPSPIKER

    Renewable energy is already cheaper than fossil fuels if you include the externalities of fossil fuels. These externalities or hidden costs are real. A cap and trade or carbon tax should level the playing field.
    There are financing plans that make it easier for homeowners to pay for solar panels. For example, Berkeley CA recently approved a plan to sell bonds to finance solar on homes. Any homeowner in Berkeley can get solar panels installed with no upfront payment.
    The cost of the solar will be paid off each year when the homeowner pays property taxes. If the house is sold, the next owner picks up the payments.
    There's not reason why this can't be done all over the country. It helps.
    In commercial projects, there are power purchase agreements that mean the end user doesn't pay for the installation.

    The cost of solar panels is coming down fast. And the efficiency is improving. Some companies like Nanosolar and First Solar are close to $1 a watt which makes them competititve with fossil fuels even without considering externalities. Nanosolar says they can build a utility scale solar system cheaper than you can build a coal fired power plant. And it won't need any coal, or pollutions to clean up.
    The solar technology that will replace coal and gas power plants is solar thermal. When it is up to scale, it will be directly competitive with fossil fuel plants. As author and scientist Joseph Romm says, it is the only source of renewable energy that fits the needs of the electric grid and can produce the power necessary to replace coal and gas. This is particularly true of solar thermal with heat storage. Heat storage can extend the hours of operation into the night, and keep the output steady when clouds pass over.
    This is a must read article:
    www.salon.com/news/fea...

    Solar thermal can produce power 24/7
    It's a sign of how misinformed Americans are, that probably 80% of Americans have never heard of what is our best option for renewable energy. Solar thermal can operate as base load, follow on, and peaker power plants. And it fits perfectly with the power demand cycle during each day.
    Combine these with wind farms and the distributed energy of PV all over the country and you have the solution to the energy crisis.
    No nukes needed. Think nukes are the way to go? Read this and think again.
    www.theleaneconomyconn...
    Nuclear is not sustainable in any way shape or form. Period.





    Reply | Link to Comment
  •  
    Nov 16 02:14 PM
    When oil and gasoline are cheap.
    America will forget Solar or Wind power.
    Sometimes I wish gasoline will remain
    at $4.50 per gallon longer so people will
    wake up to alternative energy is for long term
    solution. Guess we never learn & spoiled.
    Reply | Link to Comment
  •  
    Nov 16 03:15 PM
    Xero, Alt. Energy plays were a substitute for oil, oil is down, so are they.

    Obama will spend $15 Billion a year annually! For Alt. Energy Research, not funding of any individual sector but for all sectors combined. Research does not equate to building a Solar complex or a Wind farm.

    Research can be equated to exploration for oil. The result however is less promising. Its either a dry hole or something (commercial or not) comes out of it but you are finished at that location. With Research funding might continue even if initial results weren't very pretty. The continuation of drilling the dry hole, so to speak.

    IMHO
    Reply | Link to Comment
  •  
    Nov 16 04:17 PM
    Think depression. The earnings are in many cases dependent on charity from states in the form of subsidies. When gov't employees must be laid off due to lack of funds you can bet that solar subsidies will vanish.
    Reply | Link to Comment
  •  
    Nov 17 09:42 AM
    Obama was just on 60 minutes, and he said something that I think he just might be able to pull off. He said that the US has a history of dependence on oil --- much like narcotics (his words) --- where we're all screaming about it when the price gets high, but then the price comes down and we get adjusted to the new lower price (which is actually higher than before). He said now is the best time to break that addiction. I'm no starry-eyed supporter or any politician, but his frankness and directness about the subject was refreshing, and I think that this country will finally have a REAL energy policy put in place soon, and that will include cutbacks in imported oil and increased incentives for solar, wind and NG.

    And in reference to the last comment about states laying off people, he (or she) doesn't realize that most states have already put into place mandated increases in the percentage of "alternative"... energy sources that utilities must use. It has nothing to do with the state --- its all on the utility companies to do it. That is the bulk of this stuff --- not private individuals and subsidies. Just like WPSPIKER said the subsidies, while they are there, are currently not enough to push the average Joe to invest in panels for his roof. I've looked into it and even with big incentives from CT that nearly pay half of the system, its still 15 years to break-even.
    Reply | Link to Comment
  •  
    Nov 17 11:52 AM
    I think instead of more subsidies it should be written into the building code for all new construction especially commercial/institution... If the upfront cost is a line item in project financing from the start the ongoing cost of debt service for that portion of the budget is less than the cost of energy is produces. If the cost of the system on a residence was spread out through the term of the mortgage the energy savings far outweigh the monthly cost.

    I strongly support subsidies and incentives for all forms of alt energy, however at this time I don't think we can afford it.

    On Nov 16 08:42 AM WPSPIKER wrote:

    > I like the fact that solar is a good source of power. problem is
    > in this environment everyone wants green they just want it at a much
    > lower cost. Up front costs of solar are still too high to get the
    > average joe involved. and that is what it will take to make solar
    > worth while in USA. What is required the better gov. subsidies
    > similar to what has been one in Germany. Who in there right mind
    > will put in the system that will take close to 20 years to pay back
    > the initial investment, as wells that investment will last only 20~25
    > years? I am not a tree hugger but I do thin we need more green
    > energies. solar is part of it but the upfront costs need to be dealt
    > with prior to it making it main street..
    > mark
    Reply | Link to Comment
  •  
    Nov 17 09:49 PM
    I own jaso at 3.85 how long are we talking till I get my money back anybody??

    Solar is the way to go but I dont understand why some stocks like jaso are so beat up. The street is teaming up and shorting solar. They stick together in sectors' or Features.

    Its like the Steelers game yesterday some times your just getting cheated.
    Reply | Link to Comment
  •  
    Nov 18 04:35 AM
    Well, currently our local price of modules is at 6 evr/ watt, 10evr/W installed. That makes ROI sci-fy. Our feed in rate is 40 cents/KWh.

    It is predicted, that ex-works price of modules could be at 3 evr/W next year.

    At assumption of 20 years of life time, here is ROI as function of price:

    6evr/W ... 3,04%
    5evr/W .... 5,17%

    what about thin film?

    4evr/W ... 8,04% that sounds better than fixed interest

    bottomline, if the price of modules drops, average Joe here is going to start putting modules on his roof.
    Reply | Link to Comment
  •  
    Nov 19 03:39 PM
    klemenv,

    great comment. can you provide some additional details? like where you are located, whether your calculations include tax incentives, etc.
    Reply | Link to Comment
  •  
    Nov 28 04:26 AM
    The solar sector will, no doubt, experience very harsh times as the markets continue their freefall and the demand for anything that is not indispensable shrinks considerably. But, it makes no doubt that many companies in this particular sector are way undervalued, especially since they are trading at below their book values! This can only mean one thing: the market in general and solar investors are discounting the fact that these companies will actually destroy value in the coming year rather than create some, meaning that they are most likely to lose money and generate negative earnings. I can only but note that these views are extremely negative and are not coherant with the company's outlook (at least in the case of JASO) nor the general consensus of informed analysts and investors.

    My conclusion is that JASO stock is certainly not worth 27$ or even 15$ as many naive investors ore wishfull thinkers might hope, but is certainly worth more than the book value of one share.

    IMHO
    Reply | Link to Comment
  •  
    Dec 10 02:42 PM
    Wind and Solar combinations are the best for Homeowners. Large Corporations will choose solar because of the large coverage area and the Tax Incentives.

    Did you know the Solar Panels put out more power if under water and cool ?

    They lose about 1% of output when they heat up in the sun. Not much just something we noted in our experiments with some panels.
    Reply | Link to Comment
  •  
    Dec 10 02:44 PM
    I am buying all the YGE I can afford. If the price of oil heads up again then Consumers can profit from using solar power and wind power to cool and heat their homes. Prices are down on wind generators out of China too!
    Reply | Link to Comment
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