Global renewable energy consumption is expected to more than double by 2050, with solar energy contributing a sizable chunk of this growth. Solar companies involved in making panels and other components should benefit from the growth in solar energy use. Among module manufacturers, Chinese company JinkoSolar (JKS -0.46%) looks particularly promising. Here's why.
JinkoSolar's rapid growth
In the first quarter of 2022, JinkoSolar's module shipments grew 76%, while total shipments grew 56.7% year over year. Its revenue rose nearly 86% year over year, though it fell 10% sequentially due to the impact of COVID-19 related restrictions in China during the quarter.
JinkoSolar sells solar wafers, cells, and complete modules. Solar wafers are thin slices of crystalline silicon used to make solar cells. A module contains several solar cells connected in series.
Image source: JinkoSolar.
Conventional solar cells can be improved using one of the many available solar technologies. JinkoSolar's Passivated Emitter and Rear Contact (PERC) cells are improved to produce more energy than conventional cells. Such cells have an extra layer at the back, which allows the sun's rays to reflect into the cell, producing additional energy. JinkoSolar is also focusing on N-type cells, which have proved to be very efficient. Silicon wafers in N-type cells are infused with phosphorus, making them negatively charged (so named 'N-type').
As the chart above shows, JinkoSolar has been growing its production capacity for all its offerings steadily. Apart from large-scale utilities, increased penetration in the distributed generation market has contributed to JinkoSolar's growth. The company is laser-focused on keeping its costs under control.
JinkoSolar is also growing significantly in its domestic market. Roughly half of JinkoSolar's sales come from Asia, including China and the Asia-Pacific region. North America and Europe account for roughly 35% of the sales, and the remaining sales come from other countries.
The solar panel market is competitive
Although JinkoSolar's growth looks impressive, it is important to note that the market for solar panels is highly competitive, which impacts the margins of companies operating in the segment.
JKS Revenue (Quarterly) data by YCharts.
As the chart above shows, JinkoSolar has managed to grow its revenue much faster than competitors like First Solar (FSLR 0.43%) and Canadian Solar (CSIQ -0.83%). However, despite the higher revenue, JinkoSolar's profits are comparatively lower due to its low margins. First Solar is clearly leading when it comes to margins.
The low margins also affect JinkoSolar stock's valuation.
JKS PE Ratio data by YCharts.
Though the stock's price-to-sales ratio is attractive, its price-to-earnings (P/E) ratio is relatively higher. The disparity in the two ratios is due to JinkoSolar's slimmer profits despite higher sales.
Notably, with minuscule profits, JinkoSolar's recent revenue growth is funded largely by debt. Rising debt levels is a key concern.
JKS Total Long Term Debt (Quarterly) data by YCharts
JinkoSolar is sacrificing margins to boost top-line growth. At the same time, the company is keeping its costs under control, which makes the stock interesting. However, I would keep an eye on how JinkoSolar's margins and debt levels trend over time before jumping in.
