The solar sector is starting to heat up and I am bullish on the group long term. Some of the smaller cap names such as Renesola (SOL) and SolarFun (SOLF) have been running up of late as some of the momentum players have been jumping on the bandwagon. While some of this may be frothy action, I think the future is bright. The World Bank recently announced a plan to fund five African countries with $5.5 billion for solar projects to be finished by 2015. However, there is one stock I like in particular: Chinese stock JA Solar (JASO).
JA Solar is a small cap, but not a micro cap at about $1 billion in market capitalization. It trades over six million shares a day, so the liquidity is quite good. Additionally, it has broad analyst coverage, with 18 analysts covering the stock. In terms of the fundamentals, the company just announced it signed multiple supply agreements with customers to provide more than 500MW of solar cells for delivery next year. The CEO has stated that he is seeing strong demand across the board for their products from customers. The stock got nice pop on the news of this solar cell supply agreement.
The valuations are compelling even after the stock’s runup. It is only trading at about 7.4x this year’s estimates of 95 cents per share. That compares quite favorably against a long-term growth rate of 20%. It has operating margins and a return on equity just north of 15%, which indicates excellent efficiency. It does have $350 million in debt on the balance sheet, but it’s not too worrisome since its cash hoard is almost equal to that and it had stong cash flow from operations last year.
Analysts have been busy raising their earnings estimates on the stock. Over the past month, this year’s consensus estimates have risen 16 cents to 95 cents per share. Thirteen analysts have raised their forecasts while only one lowered them.
It’s tough to put a target price on stocks, but I would think that $10 is a fair price given its growth rate. That would be about a 10x p/e multiple which is definitely reasonable. Of course if estimates keep rising, so will the target price.
JA Solar: Heating Up is an article from: 
