Seeing Double in Solar

Yesterday's earnings release by Solarfun Power (Nasdaq: SOLF  ) had me seeing double -- and I'm not even talking about the solar cell and module maker's doubling of analyst earnings estimates. Something just seemed strangely familiar about the reported numbers.

I finally figured it out. Take a look at this side-by-side comparison with the first-quarter report of Canadian Solar (Nasdaq: CSIQ  ) :

Metric

Solarfun Power

Canadian Solar

Revenue

$171 million

$171.2 million

Shipments

40.3 megawatts

41.8 megawatts

Gross Margin

16.5%

16.5%

Operating Margin

12.1%

11.7%

European Revenue

100%

97.9%

All data from company filings.

Right now, these two Chinese solar players appear to be nearly identical. Mr. Market sees it this way as well and assigns the companies roughly matching enterprise values.

So is there any reason to favor one company over the other? Are they really interchangeable?

A glance at full-year guidance reveals that the companies aren't gunning to grow at exactly the same speed. Solarfun raised its 2008 shipment guidance to the 160- to 180-megawatt range, while Canadian Solar maintained guidance of 200-220 MW. The latter projection excludes production of low-cost "e-Modules," which I've recently eyed with interest.

This is no commentary on the longer-term growth trajectory of the two companies. Solarfun, which has signed agreements with both LDK Solar (NYSE: LDK  ) and Hoku Scientific (Nasdaq: HOKU  ) for future raw-material supply, may very well leapfrog Canadian Solar in the future, provided that it can secure large enough customer commitments to justify accelerating its manufacturing expansion.

For me, Canadian Solar's push into upgraded metallurgical silicon is enough of a differentiator to make me favor the company over Solarfun. Investors appear to be giving the former company little credit for this potentially margin-mutating move.

Related Foolishness:

Later this month, our Global Gains team is headed to China and other parts of Asia for fresh investment ideas. Stay tuned to sign up for free dispatches from their trip. In the meantime, check out why head analyst Bill Mann thinks China is the world's greatest value.

Fool contributor Toby Shute doesn't have a position in any company mentioned. The Motley Fool has a disclosure policy.


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  • Report this Comment On May 22, 2008, at 4:51 PM, hoanngo wrote:

    I can not believe that an analysist like you does not know how to evaluate the right stock price . Compare between Solarfun Power and Canadian Solar , they have almost equally everything like revenues , margins ... but number of share of Solarfun almost double that of Canadian Solar . Therefore , stock price of Canadian must be double compare to Solarfun to make Market Cap equally .

    Hope that you do research more careful before issue a news .

  • Report this Comment On June 05, 2008, at 6:39 PM, TMFKopp wrote:

    Toby did not say that the stock prices were the equal, he said that the enterprise values were nearly identical. Enterprise value is equal to the market cap minus cash plus debt. It is a value of the entire company so it captures differences in share counts.

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