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Solarfun Power: The Next Solar Giant?

by: Kelvin Schulle July 16, 2008 | about stocks: SOLF    

Kelvin Schulle

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In the solar sector, good names are everywhere simply because the whole sector is booming. But which one is better for investment? The answer, in my opinion, is Solarfun Power Holding (SOLF).

Solarfun Power Holding has revenue of $497M/year, with a quarterly revenue growth of 528% (the highest in solar sector); more importantly, revenue per share [RPS] is at a high of $10.34 and FPE is only 1.69, yet company market capital is merely $710M (source: Yahoo Finance and Capital IQ). If you look at Evergreen Solar (ESLR), revenue is $78.8M/year, while quarterly revenue growth is 62%. RPS is only $0.8 and PFE is as high as 21.72. However, ESLR's market capital is $1.24B as of yesterday's close; that is 75% higher than Solarfun Power Holding. Shouldn't SOLF have a market cap higher than $1.24B?

Take a look at another example, SunPower Corporation (SPWR). The company has revenue of $906M/year, FPE of 22.1, RPS of $11.8 and the market capital is at $6.5B. If you apply the same scale from ESLR and SPWR to SOLF, Solarfun Power Holding would be over $2.5B. Obviously, it is time to appreciate SOLF stock price during this solar earning season, and remember that the market will never ignore a good company.

Solarfun is experiencing a growth burst. I expect that the company will reach $2B market cap in the next few quarters with such a strong revenue growth. The company has recently rasied about $180M by stock offering, so cash is not an issue any more for the company to grow aggressively. Solarfun investors should not expect a surprise stock offering after a strong quarter, just like what Canadian Solar (CSIQ) did this week. Recently Solarfun signed 47MW deal with Schuco International KG to reach out market in southeast Europe and the Middle East. This is whole new market for Solarfun, and a milestone for the company. This deal only will boost revenue by 30-40% for the coming quarters. So investors should expect continuous strong earning into 2009 (I will not be surprised to see a upped-guidance from the co any time).

Solarfun Power Holding has wide support from different investment groups, such as JPMorgan and Goldman Sachs. Recently China Legend Capital disclosed an investment in Solarfun (see Yahoo News, Wed July 9, 2008). So what is holding back SOLF? The answer is naked shorts; until today 6M shares are shorted,  14% of float. With great earning coming in few weeks, the short squeeze should pick up quickly. I see a $25-28/share easily before earning.

Disclosure: Author holds long positions in SOLF and ESLR

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This article has 15 comments:

  •  
    Jul 16 07:32 AM
    Trying to pick the next giant in this space is no easy task. From a sales, earnings, and growth metric, JASO looks compelling as well.
    Reply
  •  
    Jul 16 07:55 AM
    you forgot to mention ESLRs 76 mil revenue will go up to an average of 1 billion per year over the next 4 years
    Reply
  •  
    Jul 16 08:50 AM
    I agree with Ames ............. JASO is a hidden secret that does not get the coverage ........ and is ready to pop.... Big!
    Reply
  •  
    Jul 16 09:12 AM
    Great article - but it appears that you are using Yuan in your calculation for future PE on SOLF. I believe the real number is around 16.2. Even better!
    Reply
  •  
    Jul 16 10:14 AM
    While it is hard to trust anyone who does not know what currency the numbers are in, SOLF is still a compelling story.
    Three best buys [now], in no certian order, are SOLF, CSIQ, LDK - I would include ENER, but it's current price does not represent value. CSIQ recent shelf announcement gives opportunit to buy. Note that LDK no longer runs up on contract announcements, but it ran for 4 days in advanace of today's announcement. Expect as little as 1 or 2 day pullback. SOLF still under shorting pressure, but when someone releases EPS showing a big upside surprise, watch the shorts get crushed. What if ESLR shows a profit Thur. v. it's -$.10 est. or SPWR beats it's $.51 est. also on Thur. ??????? hmmmmm
    Reply
  •  
    Jul 16 10:55 AM
    Yahoo finance has some numbers for SOLF in Chinese currency (about a factor of 8 off). I calculated the FPE (PE based on 2009 earnings) recently. It was over 11. I'm too lazy to do it again right now. But you should try to get better data. I realize you are probably used to Yahoo Finance being correct, so I won't be too critical.
    Reply
  •  
    Jul 16 11:03 AM
    SOLF and YGE have the lowest forward P/E estimates in the solar group. Cash flow has been given for a reason of the low FPE but I think everything will work out great for solar as the earnings show they are sustainable. I presently own and am buy more solar stocks since they have been beaten down by speculators/shorts. I own almost everything except ENER, FSLR, and SPWR.
    Reply
  •  
    Jul 16 12:20 PM
    SOL has the best grow and P/E now.
    Reply
  •  
    Jul 16 03:33 PM
    Only jbde mentioned 3 stocks and one of those is CSIQ. While other comments discussed many other solars - but no CSIQ. To me, it means that CSIQ is still under the radar of lots of investors - that's music to my ears, CSIQ will have a lot more to go on the upside.

    Despite Dr. Jack Yetiv's lengthy discussion of CSIQ that uncovered this gem, and his numerous comments (on CSIQ) under other solar articles, CSIQ remains under the radar apparently - it is a good thing.
    Reply
  •  
    Jul 16 09:32 PM
    Does this company produce thin film solar panels? If not watch out when the thin film solar panels come out.
    Reply
  •  
    Jul 16 09:38 PM
    SOLF's quarterly growth rate is about half of CSIQ. However, SOLF beats CSIQ in everything else except share price, and market cap.
    Reply
  •  
    Jul 17 01:27 AM
    Which stock appears to have a solid "uptrend"? And is way above its year-ago price?

    Which stock appears to go nowhere? And is only slightly above its year-ago price?

    If you want something "cheap" and something appears to be a "bargain", SOLF is the way to go. (90% of market players will take this route.)

    If you want to go with something that is "strong" - sorry, it is very "expensive" and you just have to pay up to get it, CSIQ. (Less than 10% market players will take this route.)
    ======================...

    bigcharts.marketwatch....=

    bigcharts.marketwatch....=

    Reply
  •  
    Jul 17 02:02 AM
    Sorry, wrong charts. Here they are CSIQ & SOLF.

    CSIQ:
    bigcharts.marketwatch....

    SOLF:
    bigcharts.marketwatch....
    Reply
  •  
    Jul 17 02:37 AM
    I am seeing the martket cap of $840m on Scottrade for SOLF.
    Reply
  •  
    Jul 18 05:17 PM
    Since no one else has commented on the "naked shorts" theory I will throw my two cents in. There has been alot of short covering (compare % short month over month) in SOLF lately without a large price increase. This is odd, although possible if indeed there has also been net selling of long positions. Of course, there is no way that I know of to determine for certain whether short shares were established and then covered legally. However, I do believe that there is reason to be suspect since the short interest made up such a large percentage of the float one would expect that even with net selling of long positions there would be significant upward price pressure. Downward price pressue has seemed to hold ever since Goldman's comments...
    Reply
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