The solar industry has been in a mess this year as an oversupply of products and an inventory glut have taken their toll. However, I believe solar is the next energy frontier and it is worth taking a detailed look at companies in this space to try to find the ones that would make for a decent investment in the long run.
I recently wrote about JinkoSolar's (NYSE: JKS) drab performance in the just-concluded third quarter as the company felt the pinch of declining prices of solar products along with the rest of the industry. Now let's take a look at its credentials and see how it may perform once the solar shakeout is over.
The rise and the decline
Over the past two years, JinkoSolar has compounded its annual revenue at a rate of almost 100%, while revenues have jumped a whopping 170% in the last one year. These numbers may seem astonishing, but they came during a phase when the industry was booming and solar companies were laughing their way to the bank.
However, all of it has changed this year after subsidy withdrawals in key markets such as Germany and Italy dragged down the prices of solar products and throttled margins of almost all companies. The rise in costs over the past year has beaten the jump in revenues, and inventories have been piling up in a crazy manner at JinkoSolar and the rest in the industry.
Efficiency
The solar business is mostly about producing at low costs and pumping up shipments. Hence, a look at gross margins will tell us how cost-efficient the company is. Also, to back that up, we will take a look at the price-to-sales ratio (the lower, the better). The price-to-sales ratio is a useful measure to check how much you will be paying for each dollar of sales. It is useful in the case of a young industry under the hammer and sliding toward losses.
Let's see how JinkoSolar performs on these two counts when stacked up against its competitors.
|
Company |
Gross Margin (TTM) |
Price-to-Sales (TTM) |
|---|---|---|
| JinkoSolar | 21% | 0.11 |
| Yingli Green Energy | 23% | 0.28 |
| SunPower | 16% | 0.25 |
| LDK Solar | 22% | 0.23 |
| ReneSola | 22% | 0.13 |
Source: S&P Capital IQ. TTM= Trailing 12 months.
As far as gross margins are concerned, JinkoSolar has kept a lid on costs and is at par with its peers. But it steals the march when we take a look at the price-to-sales ratio and this factor sets it apart from the rest.
Additionally, JinkoSolar has been expanding in newer geographies like Australia, France, Spain, Portugal, and the U.S. as part of an aggressive marketing policy. These moves will hopefully help when the industry finally looks up.
If you are looking for a growing solar play, add JinkoSolar to your watchlist by clicking here and keep track of how the company performs going forward.
