Stocks in the solar industry are volatile, and it’s difficult for investors to pick a great company. Since just a few companies in the sector are profitable, investors should ignore the loss-making firms.
Canadian Solar (CSIQ, Financial) is one such company; although its debt is a little too high, the risk/reward ratio is attractive.
Strong quarterly results
Recently, Canadian Solar shared robust first-quarter results, beating the analyst estimate on the top-line as well as bottom-line front. Due to the robust implementation in its factories, the company observed lower-than-projected costs. Sales from Asia and America continued to generate strong revenue. This was possible mainly due to the strong demand in the company’s solar module business.
In the most recent quarterly results, advantages gained from any solar project sales were not included but in the imminent quarters the company will endure its balanced tactic of project sales and project retention to exploit both valuation as well as flexibility. The company also plans to sell some of the assets in the approaching other half of 2016 and will also introduce some extra solar power plants.
Canadian Solar’s long-term strategy is responsible for the company’s unrelenting success and setting it apart from its rivals. Moreover, the company’s financial has permitted it to fund its projects at lesser than projected rates. Apart from this, the company is focused on maximizing the long-term return to its stockholders.
Challenges for Canadian Solar
Canadian Solar’s solar panels are not ideal for trivial scale solar installations because the company still produces commodity solar panels. Keeping in mind the growth of distributed solar, efficiency will probably play a significant role in the solar manufacturing industry.
Residential solar comes in the category of greater efficiency modules and has some benefits because of its capability to decline the unbalanced large soft rates of trivial scale divisions. Despite the fact that Canadian Solar is working hard to improve its module effectiveness, the company will face many difficulties to reach the efficiency level of solar industry leaders such as SunPower (SPWR, Financial).
Though utility scale solar will more definitely play a noticeable role in the solar industry in the imminent years, distributed solar is beginning to make a huge impression.
Conclusion
Unlike SunEdison (SUNEQ, Financial), Canadian Solar’s debt is manageable. The stock is trading at a cheap valuation given that it is one of the few profitable companies in the sector.
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