According to a recent post I have read in oilprice.com, a rally of solar energy companies’ stocks is possible as they are traded too low for the market. I think it’s an interesting idea worth exploring.
Before dealing with the issue at hand, note that at the bottom of the post I have added a list of links vis-à-vis facts about solar energy.
Since there are a plethora of solar energy companies, I will quickly review one of the biggest solar energy companies – Applied Materials Inc. (AMAT) with a market cap of over 16 billion USD, in an attempt to see the current condition of this company and perhaps infer on the solar market. Although this huge company does much more then just solar energy solutions, it is one of the biggest companies in the business.
According to yahoo finance, Applied Materials Inc. has been trading between the years 2004 and the end of 2009 around roughly 15- 25 USD per share. At the end of 2009 the stock plummeted and is been traded between 8 and 14 USD for the past couple of years. This drop in stock price was no surprise: this company’s financial repots showed a dramatic fall in its revenues and especially in new orders (i.e. its growth) from 9,155 million USD in 2008 to 4,097 million USD in 2009. Further, its net income for that year dropped from a net profit of 960 million USD in 2008 to a net loss of 305 million USD in 2009.
When reviewing the 2010 financial reports (three quarters), they show a rise in the company’s revenues and if summing the three quarters’ performance, the operational income is 684 million USD and the net income is 469 million USD. As a comparison, last year’s first three quarters showed an operational loss of 566 million USD and the net loss of 443 million USD.
Final point to consider: solar energy company, in its cash flow for the first three quarters of 2010, presented a net change of -12 million USD in its net cash flow, which is mainly because of 322 million USD provision for investments they have written at the first Q of 2010.
Since I won’t proceed to a full valuation of this company, I would only like to refer to the data I have quoted above and try to reach a conclusion on this subject.
On the one hand, Applied Materials showed some strength by improving its revenues and profit while putting a lot of the company’s funds into investment. If the investments are sound and will be proven profitable such as making a technological innovation, then it might be a good reason for a rise in this company’s stock price.
On the other hand, this investment could be many things that won’t be necessarily an investment that will make the company money in the short or long term. Nevertheless, I would say, at first glance it does seem that this company’s stock is underperforming, despite showing strength in its reports and making huge investments.
Obviously it’s very hard to infer this cautious projection to an entire industry, however if solar energy companies will show similar strength it could be that their stock will become attractive.
For those who are interested in further reading facts about solar power, here is a list of several links that provide information on this subject: