Please ensure Javascript is enabled for purposes of website accessibility

Solar Acquisition: Trina Solar Buyout Shows Value in the Solar Industry

By Travis Hoium - Aug 1, 2016 at 5:45PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Trina Solar's CEO is leading a buyout of the company, which could be a sign that solar stocks are undervalued.

Image source: Getty Images.

Trina Solar (NYSE: TSL) got a serious offer to be taken private on Monday and this time it may be for real. You may recall that in December, Jifan Gao, the chairman and CEO of Trina Solar, and Shanghai Xingsheng Equity Investment & Management offered to take the company private for $11.60 per share. But the deal was non-binding and the market didn't take it very seriously.  

The offer that's currently on the table is a "definitive agreement" to pay $11.60 per ADS, which at the least should be taken more seriously than a non-binding one. It may also show that the discount at which Chinese solar companies are trading is too steep on the market today.  

Why Trina Solar is a great buyout target

Over the past few years, Trina Solar has dealt with a stock price that it doesn't feel indicates the value of the underlying company. Trina Solar is a leader in solar panel manufacturing with 5.6 GW of PV module capacity and 967.3 MW of solar projects connected to the grid and $89.2 million  in net income over the past year. But it couldn't garner a valuation above $900 million before Monday's pop.

Part of the problem is that the market doesn't quite know what to do with Chinese solar stocks, which have been incredibly volatile over the past five years. Like Trina Solar, many manufacturers were heavily subsidized by Chinese state-run banks, allowing for a massive increase in panel supply that flooded the market and killed profitability.

It's only recently that companies have seen the oversupply pressures ease as competitors have gone bankrupt and some companies, like Trina Solar, are differentiating themselves on a technological front.

Could buyouts become the norm in solar?

Two companies with many of the same technological features as Trina Solar are Canadian Solar (CSIQ 0.00%) and Hanwha Q Cells (HQCL). Both are among the largest solar manufacturers in the world, they're profitable, they are developing solar projects themselves, and they're improving technology. To top it all off, they're worth just $870 million and $1.1 billion, respectively.

It's possible that a buyer looking to unlock value from those companies' portfolios could be interested in acquiring them. Given the recent trend toward top-tier companies that are currently taking market share, now may also be the time to consolidate power among solar manufacturers.

Solar stocks may be in value territory

This could be a sign for investors that solar stocks have finally entered extreme-value territory. If insiders, who should know the business better than anyone on the public markets, think shares are undervalued and a buyout at a significant premium is a good deal for them, maybe stocks are undervalued.

If leading solar companies continue to report profits in the next few quarters, I think there will be growing evidence that solar stocks should trade much higher than single-digit earnings multiples where they're trading today. At the least, the potential of a buyout offers a floor to the value of solar stocks, which the industry may already be reaching.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Canadian Solar Inc. Stock Quote
Canadian Solar Inc.
CSIQ
$32.38 (0.00%) $0.00
Hanwha Q CELLS Co., Ltd. Stock Quote
Hanwha Q CELLS Co., Ltd.
HQCL

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.