JA Solar Holdings, The Best Investment Opportunities in China Solar Stock
JASO went public in February of 2007 at a split-adjusted price of $5. The stock was well received and over the course of the next year it returned more than 400% to investors.
It's easy to see why investors were so excited about the stock. After all, the company is growing with earnings from $0.12 per share in 2006 to an estimated $0.90 in 2008 and $1.27 in 2009. That's a compounded annual growth rate of over 50%!
But despite proven historical growth and expected future increases, the stock is still trading at three times earnings (that’s right, I said THREE – as in Goldilocks and only three bearish multiple points).
Why is the stock so depressed? It has a lot to do with mistakes that are already in the rear-view mirror. See, the company loaned some cash as well as stock shares to Lehman Brothers before the investment firm went bankrupt. That was a bad move! Now the capital is gone and the shares will not be returned, which means current shareholders are diluted.
I call this a tactical mistake by management – it turned out to be the wrong move. But it doesn’t reflect poorly on management’s judgment. After all, the failure was unprecedented and all the smarts in the world still would have had a hard time predicting this turn of events.
So now the market is punishing the stock for past sins (and for weakness in the industry). However, the past sins are over, and the industry is not going to go away. As attention returns to alternative energy, as it surely will during the next administration, solar stocks will once again gain favor.
Beat the Bandwagon
I don’t want to sound sensational, but the opportunity here is quite impressive. Historically, companies with JASO’s growth prospects have sported multiples of 30 or 40 (or more) times earnings. But I’ll take a more conservative approach.
Let’s say analysts are too aggressive with their expectations. Suppose JASO only earns $1.10 per share instead of the $1.27 forecasted. Let’s further assume the multiple is 15 (as opposed to the 30 or 40 which used to be common). That still leaves us with a stock price of $16.50. That's a triple-digit gain from the current price.
I know it sounds “too good to be true.” And I’m fully expecting plenty of back and forth, up and down before the stock gets to this level. But buying now as investors are despairing gets you an excellent price and sets you up for a fantastic opportunity.
Please keep track of your entry price and when you sell this stock a year or two from now, let me know how much you made. In fact, when you make triple-digit gains on your money, you will have enough cash to fly down to Atlanta and take the Scheidt family out to dinner!
Haha – just kidding, of course.
By: Zachary Scheidt, Taipan Publishing Group