Better Buy: Yingli Green Energy or Trina Solar?

Trina lags Yingli in PV module shipments, but don't let that stop you from picking up shares.

Mar 31, 2014 at 9:10AM

With so many names to choose from among solar companies, investors may find it difficult to choose one. Yingli Green Energy (NYSE:YGE) and Trina Solar (NYSE:TSL) are two industry leaders that performed well in 2013. However, for 2014 and beyond I believe Trina Solar is the better choice -- with its shares down 28% from their 52-week high, now may be the right time to get in.

YGE Chart

YGE data by YCharts

Tale of the tape
According to NPD Solarbuzz, for the second year in a row Yingli claimed first place in the Top-10 list of module suppliers; Trina, moving up one spot from 2012, came in second. With shipments of 3,234.3 MW of PV modules in 2013, Yingli's deliveries represented a 40.8% increase year over year. However, Trina was the better growth story -- its 2,584.3 MW of shipments represented a 62.2% year-over-year increase. While it grew its shipments at a better clip than Yingli, Trina has outperformed its peer by a number of other metrics as well.

A look at the books
Even though Yingli clearly leads when it comes to module shipments, that doesn't mean that it's more profitable than Trina Solar. In fact, Yingli's efforts to capture market share have come at what seems to be too great a cost. As of December 31, 2013, Yingli's total liabilities totaled $4.16 billion -- so it failed to improve on its $3.68 billion total as of December 31, 2012. Consequently, total shareholders' equity during the same period plummeted from $677 million to $351 million for this past year.

Trina's books tell a much different story. Its total liabilities as of December 31, 2012 totaled $1.98 billion, but unlike Yingli Trina was able to improve on this as it reduced its liabilities to $1.74 billion. Like Yingli, Trina's total shareholders' equity also dropped, but the drop wasn't nearly as dramatic -- from $882 million at the end of 2012 to $822 million at the end of 2013.

Yg

Source: Yingli Green Energy


All of this translates into one startling fact: Yingli's debt-to-equity ratio, at the end of 2013, was a sky-high 11.83. Trina's ratio, on the other hand, was a much more reasonable 2.12. Taking on more debt isn't always a bad thing -- it's clearly a worthwhile move if it translates into increased module shipments. In this situation, though, Trina wins in this round as it delivered greater growth in module shipments, year over year, while it maintained a much better handle on its debt.

In terms of the future, Trina is looking to grow and expand its production capacity while still keeping a close eye on its debt. In February, the company announced that it is acquiring a majority stake in Hubei Hongyuan, a specialized PV cell producer in Hubei Province. Management touts the value in the deal as it "will provide Trina Solar with the benefit of greater access to solar cell manufacturing capacity and at a low cost of capital."

Looking to the bottom line
When it comes to margins, let's take a look at how both companies perform. In terms of gross margins, Trina improved from 4.4% in 2012 to 12.3% in 2013; Yingli's gross margin improved from -3.2% in 2012 to 10.9% in 2013. In terms of operating margin, Trina improved from -20.4% in 2012 to -2.1% in 2013; Yingli's operating margin improved from -22.2% in 2012 to -8.3% in 2013. Trina wins on both accounts. 

When it comes to profitability in 2013, neither Yingli nor Trina was in the black; however, Trina's performance inspires much more confidence. For the last two quarters, Trina has been increasingly profitable while Yingli has taken bigger losses; moreover, in terms of its fiscal year 2013 performance in comparison with that of 2012, Trina has made greater strides toward becoming profitable than Yingli has. The table below shows the diluted EPS for each company.

 

Q4 2013

Q3 2013

FY 2013

FY 2012

Yingli

$(0.82)

$(0.25)

$(2.05)

$(3.14)

Trina

$0.21

$0.14

$(1.01)

$(3.77) 

Foolish final thoughts
There are lots of opportunities for investment in the solar industry -- opting to go with a PV module manufacturer is just one way to go about it. When looking at Chinese PV manufacturers, one of the most important things to consider is the amount of debt the companies carry -- just ask LDK Solar, one of the more recent victims of bankruptcy. For this reason (and a number of others) I think there's no doubt that Trina offers the more compelling thesis for investment.

Are you ready for this $14.4 trillion revolution?
Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer Amazon.com in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

 

Scott Levine has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers