Please ensure Javascript is enabled for purposes of website accessibility

A Silver Lining for JA Solar

By Travis Hoium – Updated Apr 6, 2017 at 11:17PM

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

With 90% of production under contract for 2011, the market is overreacting to JA Solar's weak quarter.

The thin tightrope solar companies are walking led two companies in opposite directions yesterday. Trina Solar (NYSE: TSL) reported improving sale prices, increased margins, and blowout earnings, but JA Solar (Nasdaq: JASO) wasn't so lucky. The company reported blowout earnings, but sale prices fell and margins were squeezed as a result, causing the stock to take a turn for the worst.

JA Solar shipped a record 463 megawatts in the fourth quarter and revenue jumped 137% from last year to $584.3 million. Earnings per ADS were $0.59, beating estimates of $0.48, but that hasn't been the focus for investors. The focus is gross margins, which were 19.2%, down from 33.5% last quarter, a bad sign in a strong quarter for solar sales. Trina Solar reported much higher 31.4% gross margin, but the difference has an easy explanation.

It appears that the big difference between JA Solar's and Trina Solar's results was the company's sales of modules on contract. JA Solar ended last quarter with much of its capacity under contract and was not able to take advantage of market prices, which according to Trina's results rose in the quarter. That doesn't make one right or wrong. It just explains the difference.

If you prefer to sleep at night knowing your company has contracts and prepayments for its products, JA Solar is the way to go. It already has 90% of its capacity under contract for 2011.

JA Solar is also trading at a bargain-basement price of $7.45 per share, 4.6 times 2010 earnings, so there is lots of upside for investors willing to jump in.

As competitors such as LDK Solar (NYSE: LDK) and Canadian Solar (Nasdaq: CSIQ) add capacity, there are still demand concerns, but JA Solar's contracts put it in great position this year. I like the price, upside potential, and think this is one of the top picks in solar right now.

Interested in reading more about JA Solar? Click here to add it to My Watchlist to find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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.

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
$36.84 (-1.45%) $0.54

*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
339%
 
S&P 500 Returns
109%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

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.