I recently wrote about Yingli Green Energy's (NYSE: YGE ) strong second-quarter performance. The solar products manufacturer bumped up its shipments to post profits and managed to perform well in an industry besieged by tepid product demand and subsidy cuts in important markets.
Let's take a detailed look at Yingli's fundamentals and examine whether it deserves a place in your portfolio.
The good
The company's compounded annual revenue growth over three years stands at 34%, whereas in the last 12 months revenues have jumped an astounding 61%. This is incredible considering many in the industry have faltered this year as subsidy cuts in key markets like Germany and Italy have dragged down the prices of solar products.
However, in spite of the broader economic slowdown, the previous quarter went pretty well for the company as revenues shot up a staggering 63% year-over-year, thanks to increased shipments and expansionary policies. Yingli is progressing aggressively in the North American market and hopes to capture 15% share by the end of this year. Moreover, the company is among the leading players in the lucrative Chinese market, where it has been winning orders for supplying modules. This augurs well for Yingli as the solar industry is rapidly growing in China and the government plans to grant 50% subsidies to solar products over the next two years.
The not so good
The slowdown in the industry has left its mark on the company, as inventories grew 44% despite the jump in shipments. Let's see how Yingli stacks up against its peers in this area, which determines how well a company is selling its products.
|
Company
|
Inventory Turnover Ratio
|
Change In Inventory
|
| Yingli Green Energy |
4.9x |
44% |
| ReneSola (NYSE: SOL ) |
5.9x |
(1%) |
| JA Solar (Nasdaq: JASO ) |
9.9x |
133% |
| JinkoSolar (NYSE: JKS ) |
7.2x |
136% |
Source: Capital IQ, a Standard & Poor's company.
As far as the change in inventories is concerned, Yingli is better off than others, but a low turnover ratio needs to be improved upon if the company is to arrest a fall in its margins. Yingli's gross margin and operating margin fell in the just-concluded quarter, contributing to the fall in its share price. Hopefully Yingli will push out more of its inventories once its expansion plans start bearing fruit.
Value
Let's take a look at how the company is valued as compared to its peers.
|
Company
|
TEV/EBITDA
(TTM)
|
Trailing P/E
(TTM)
|
Forward P/E
|
| Yingli |
3.94 |
4.25 |
4.48 |
| ReneSola |
1.78 |
2.00 |
1.64 |
| JA Solar |
2.70 |
4.17 |
2.48 |
| JinkoSolar |
3.25 |
2.93 |
2.92 |
Source: Capital IQ, a Standard & Poor's company. TTM= trailing 12 months.
Yingli appears to be the most expensive among the lot. However, there is no harm in paying for quality if growth potential is quite good. Given Yingli's potential, a P/E of four doesn't seem too pricey to me.
The Foolish takeaway
The stock seems to be fairly priced at the moment, and with development plans in place, I expect it to perform well going forward. The industry is going through a volatile phase and Yingli may be an intriguing option if you're looking for a growing solar play.
To stay on top of the latest news and views about Yingli, add it to My Watchlist.
RSS Headlines
Fool UK