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Harsh Jain
Harsh Jain
Articles (219) 

Is It the Right Time to Buy Canadian Solar?

Despite disappointing 3rd-quarter results, company's long-term prospects still look appealing

November 29, 2016 | About:

Although 2015 was an awful year for the solar industry, some solar companies managed to remain in green. Canadian Solar (NASDAQ:CSIQ) was one such candidate as the stock was up around 20%.

However, 2016 has been a dreadful year for the company as its stock price has taken a sharp downturn. The stock has lost over 60% of its value year to date.

Moving onward, after reporting six successive strong quarterly results, Canadian Solar recently shared disappointing third-quarter results. The company reported earnings per share of 27 cents, in line with the analyst estimates, whereas the top line came in at $657.32 million, missing the consensus estimates by $27.96 million. That figure represents a drop of 23%.

As a matter of fact, the solar module price plunged almost 25% throughout the third quarter to 40 cents per watt. Most significantly, that figure accounts for the lowest price at which the panels have ever sold. Until now, the bad impression of the reduction in solar module prices has not been reflected in Canadian Solars performance, but it could certainly hit the manufacturer in the future.

Moreover, the company reported that the gross margin will be in the range of 11% to 16%, down from 17.8% the previous quarter. Despite a robust financial performance, the company has been facing problems mainly due to the negativity around the solar market.

On the bright side, stockholders should keep in mind that short-term volatility in the solar market does not alter the sturdy long-term prospects of the solar industry. The company recognized just 16.3 MW of module shipments from the total solutions business in the most recent quarter. This was mainly due to the companys decision to preserve more of its projects for sale at a later time. As a result, not selling projects at feeble prices will permit the company to enhance its margins.

Apart from this, China still acts as a catalyst for Canadian Solar as it will endure installing more solar capacity. The Chinese government is belligerently pushing the installation of renewable sources of energy for producing electricity. Furthermore, it is projected that installed solar capacity in China will touch 110 GW by 2020, representing a compound yearly growth rate of more than 20% throughout the reference time period.

Summing up

Canadian Solar has a sturdy pipeline of projects along with a decreasing cost structure which makes it a better investment option compared to other players in the solar industry. The company also has numerous projects in the late stages of development, which clearly suggests it will be able to produce more revenue as soon as these projects are completed.

Canadian Solar is down considerably from its all-time high level. Considering the bright future of the solar industry, it looks like the problems for Canadian Solar will be over soon. As an outcome, it is a great opportunity for stockholders to buy Canadian Solar at its current price.

Disclosure: No position in the stock in this article.

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