In my previous article on ReneSola (NYSE: SOL ) , I wrote about how the solar-chip maker managed to post profits, unperturbed by the challenges prevailing in the solar industry and, in the process, sending its shares north. Now management has come up with another catalyst for the stock in the form of a repurchase program.
Let's take a look at what the folks at ReneSola up to.
The buyback
ReneSola has announced plans to buy back shares worth up to $100 million as the company looks to rejuvenate its stock, which has shed 66% this year. Although no particular time frame has been given, word on the street is that the solar-chip maker will be repurchasing its shares depending on the conditions in the industry.
The solar industry has been going through a rough phase this year, as subsidy withdrawals in key European markets have pulled down the prices of solar products. ReneSola, too, felt the pinch as its net income fell by a massive 95%. But, compared with bigger players such as First Solar (Nasdaq: FSLR ) and SunPower (Nasdaq: SPWRA ) , ReneSola performed well, thanks to an efficient cost structure. Let's look at how the company is financially placed to fund the buyback.
ReneSola generated free cash flow of $142.7 million in the past 12 months, up from a negative $88.9 million a year ago. However, the company's total debt also shot up to $760.7 million from $577.1 million last year. Nevertheless, an interest coverage ratio at 12 times takes some concerns off the table, as it suggests that ReneSola would have no problems meeting its interest-payment obligations under current levels of profitability.
Value
From a financial standpoint, the company appears to be in a somewhat comfortable position to fund this move. But will this strategy reap benefits in the future? Let's see how the company stacks up against its peers that have posted profits in these turbulent times for the industry.
| Company |
TEV/EBITDA |
Trailing P/E |
Forward P/E |
| ReneSola |
1.78 |
2.00 |
1.64 |
| Yingli Green Energy (NYSE: YGE ) |
3.94 |
4.25 |
4.48 |
| JinkoSolar (NYSE: JKS ) |
3.25 |
2.93 |
2.92 |
Source: Capital IQ, a division of Standard & Poor's.
Compared with its peers that have posted large profits, ReneSola's stock is cheap from both a TEV/EBITDA and P/E standpoint. But ReneSola is one of the most cost-efficient players in this industry and hopes to generate more profits from its Virtus wafer, which goes into production this year. With a competitive cost structure in place and a repurchase in the offing, ReneSola seems undervalued, as these factors will, in all probability, push the stock up.
The Foolish takeaway
Considering that it's a China-based company, it's possible that there's a strategy here to divert attention away from the drop in profits. However, if management remains true to its word, then the time may be right to move into ReneSola.
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