Please ensure Javascript is enabled for purposes of website accessibility

A Promising Solar Stock for Your Watchlist

By Harsh Chauhan – Updated Apr 6, 2017 at 4:51PM

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

Yingli may make for a good buy, but there's one problem.

Last month, Yingli Green Energy (NYSE: YGE) managed to come out with a positive outlook in the midst of the solar shakeout. It was good to finally see some positivity in an otherwise gloomy solar industry, but now is the time to take a closer look at the company's fundamentals and check how it may fare going forward.

The good about Yingli
First, a little background. Yingli has been compounding its revenue at the rate of 31% annually over the past three years. However, revenue growth over the past 12 months grew to an impressive 55% as the company kept pumping up its shipments to add more gloss to its top line.

The primary reason Yingli's stock spiked when it came out with its earnings for the last quarter was the outlook it provided. The company is in position to tap the emerging Chinese market, which is expected to grow to around 3,000 megawatts next year. Yingli plans to grab 30% of the pie. It has been expanding aggressively in the North American market and hopes to capture 15% of it by year's end. Hopefully the upward trend in revenue growth will continue.

A steady ship in a turbulent industry
However, Yingli is not immune to the weakness in the industry. Although the company has seen its top line grow, its margins have taken a hit due to the rapidly declining prices of solar products. That said, its gross margin is still the best among Chinese peers such as LDK Solar (NYSE: LDK) and JinkoSolar (NYSE: JKS).

Another important feature in the industry in these distressed times is the piling up of inventories due to oversupply in the market. Yingli performed relatively better in that regard, with a 23% jump in inventories from last year when compared with the astronomical jumps reported by industry leaders such as First Solar (Nasdaq: FSLR) and SunPower (Nasdaq: SPWR). This effectively means that the company is finding buyers for its modules even in trying circumstances and will hopefully perform better when the industry stabilizes.

There is a potential roadblock, however. A couple of months back, seven U.S. solar manufacturers filed an appeal against their Chinese counterparts, accusing them of unfair trade practices. They alleged that the Chinese players benefited from subsidies provided in China and hurt the U.S. companies by dumping their products at dirt cheap rates in this country. Yingli's margins could shrink more next year if the International Trade Commission imposes tariffs on the Chinese companies.

The Foolish bottom line
The industry is taking a beating at the moment, but Yingli has somehow wriggled out of the whirlpool and sees brighter days ahead. The sticking point that remains is the solar war between the U.S. and Chinese players. If all goes well, Yingli could turn out to be a winner in the long run as it certainly possesses the fuel to deliver the goods, but as of now, I think this is one stock that should find a place on your Watchlist.

Add Yingli Green Energy to My Watchlist by clicking here.

Fool contributor Harsh Chauhan owns none of the stocks mentioned in the article. The Motley Fool owns shares of First Solar. Motley Fool newsletter services have recommended buying shares of First Solar. 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

First Solar, Inc. Stock Quote
First Solar, Inc.
FSLR
$129.85 (-1.46%) $-1.92
SunPower Corporation Stock Quote
SunPower Corporation
SPWR
$24.69 (-1.95%) $0.49
JinkoSolar Holding Co., Ltd. Stock Quote
JinkoSolar Holding Co., Ltd.
JKS
$53.65 (-2.83%) $-1.56

*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
329%
 
S&P 500 Returns
106%

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.