It was a terrible year for Canadian Solar Inc. (CSIQ, Financial) in 2016. The stock was down almost 60%. The stock is off to an almost flat start this year as it is down almost 2% year to date. Furthermore, the company reported feeble third-quarter results as it shared EPS of 27 cents, in line with the estimates.
The company’s revenue came in at $657.32 million, missing the consensus by approximately $28 million. This represents a drop of nearly 23% year over year. Most significantly, the company’s third quarter disrupted its long and impressive streak of surpassing the consensus on both the top and bottom line.
The main factor behind the company's poor performance in 2016 was an oversupply of panels along with a decline in government subsidies for solar farms, which negatively affected its profit margin. The decrease in Chinese demand due to a drop in incentives resulted in a 30% decline in solar panel pricing.
In point of fact, the solar industry has been growing at a swift pace over the past few years. It is projected to continue growing at a healthy rate in the coming years. Therefore, it is highly likely the problems regarding oversupply will not last long due to a surge in solar demand.
Currently, Canadian Solar is the second-largest solar manufacturer in the world, comprising 5.8 gigawatts of module capacity. That is a massive amount of solar capacity that could help the company seize the largest market share of any manufacturer worldwide.
Since it has a robust pipeline in key growth areas worldwide, with the majority of its pipeline in the mid or final stages, Canadian Solar is clealy in a great position to benefit from the solar trend.
In order to survive in the solar industry, cash is necessary. In additon to the $1.2 billion of project assets it plans to sell, Canadian Solar has an enormous amount of cash on the balance sheet. This large amount of cash as well as project assets could lower the pressure this year.
Summing up
While Canadian Solar disappointed shareholders in 2016, investors should not disregard the positives. The company has a lot of cash, which is crucial for thriving in the solar industry. Moreover, it is also working to enhance its margins and has a strong pipeline.
Apart from this, Canadian Solar currently trades at a price-earnings (P/E) ratio of 4.82, indicating the stock is undervalued.
As an outcome, a significant drop in share price over the past year presents a good buying opportunity for long-term investors. The company will witness a greater demand for its products in the long run, which will surely have a fruitful impact on its balance sheet.
Disclosure: No position in the stocks mentioned in this article.
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