A Silver Lining for JA Solar

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The thin tightrope solar companies are walking led two companies in opposite directions yesterday. Trina Solar (NYSE: TSL  ) reported improving sale prices, increased margins, and blowout earnings, but JA Solar (Nasdaq: JASO  ) wasn't so lucky. The company reported blowout earnings, but sale prices fell and margins were squeezed as a result, causing the stock to take a turn for the worst.

JA Solar shipped a record 463 megawatts in the fourth quarter and revenue jumped 137% from last year to $584.3 million. Earnings per ADS were $0.59, beating estimates of $0.48, but that hasn't been the focus for investors. The focus is gross margins, which were 19.2%, down from 33.5% last quarter, a bad sign in a strong quarter for solar sales. Trina Solar reported much higher 31.4% gross margin, but the difference has an easy explanation.

It appears that the big difference between JA Solar's and Trina Solar's results was the company's sales of modules on contract. JA Solar ended last quarter with much of its capacity under contract and was not able to take advantage of market prices, which according to Trina's results rose in the quarter. That doesn't make one right or wrong. It just explains the difference.

If you prefer to sleep at night knowing your company has contracts and prepayments for its products, JA Solar is the way to go. It already has 90% of its capacity under contract for 2011.

JA Solar is also trading at a bargain-basement price of $7.45 per share, 4.6 times 2010 earnings, so there is lots of upside for investors willing to jump in.

As competitors such as LDK Solar (NYSE: LDK  ) and Canadian Solar (Nasdaq: CSIQ  ) add capacity, there are still demand concerns, but JA Solar's contracts put it in great position this year. I like the price, upside potential, and think this is one of the top picks in solar right now.

Interested in reading more about JA Solar? Click here to add it to My Watchlist to find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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Read/Post Comments (3) | Recommend This Article (2)

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  • Report this Comment On February 24, 2011, at 9:15 AM, rosaesilvag wrote:

    Sorry, where did you get that last quart margin is 33.5%? I found 22,5% and company states average of the year was 21.7, which implies a small difference off 3.3% from last quarter and 2.5 from the average??

  • Report this Comment On February 24, 2011, at 1:24 PM, sailrick wrote:

    The market doesn't seem to act rationally when it comes to solar stocks. With a trailing PE of 4.6, 50% revenue growth guidance for 2011 and capacity nearly sold out for 2011, this stock should be trading at a higher PE than the S&P 500, at the very least.

    Same goes for TSL, which continues to smash estimates.

    In my opinion, there is a bias against renewable energy on Wall St. The Wall St. Journal, for instance is notorious for printing psuedo scientific global warming denial nonsense on a regular basis. The fossil fuel industry is what Wall St loves, and they hate environmental regulations that might impact that.

    There is a concerted effort to make renewables seem impractical and unfeasible, and to protect the status quo. I think that helps explain why analysts continually stress the uncertainties and to underplay the potential of solar and wind.

  • Report this Comment On February 25, 2011, at 3:37 PM, TMFFlushDraw wrote:


    You're right, it should say 22.5%. My mistake.

    Travis Hoium

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