Canadian Solar: Still at a Reasonable Price

Canadian Solar (CSIQ) runs large-scale solar projects and manufactures solar photovoltaic (PV) models. I am bullish on the stock. (See Analysts’ Top Stocks on TipRanks)

Key Drivers

Canadian Solar distributes globally and is benefiting from various nations’ renewable energy initiatives. Perhaps the most notable initiative boosting the stock’s price is the United States’ $3 trillion reconciliation package, which (as things stand) is set to increase the solar investment 30% tax credits program by another 10 years.

Canadian Solar has established itself as a market leader with one of the world’s largest utility-scale solar development platforms. An impressive track record shows that the company has deployed more than 55 Gigawatts (GW) to six continents since its inception.

A strong project pipeline worth more than 21 Gigawatt peak (GWp) should add to investor optimism, especially since projects are geographically dispersed. This includes 4GWp in the EMEA (Europe, Middle East, and Africa) region, which is considered a lucrative growth market.

Canadian Solar Earnings

The company reported its Q2 results in August, where it hit record revenues and beat EPS estimates by $0.47.

Model shipments in Q2 jumped 26% year-over-year, with segment revenue increasing 31% quarter-over-quarter. However, its net profit margin did decrease to 12.9% from 21.2% a year ago, as rising input costs hindered profitability.

The company’s revenue outlook remains in line with its previous estimate of $5.92 billion but concedes that rising shipping costs are becoming a worry.

CSIQ Stock Valuation

Many analysts will draw a conclusion on the stock’s price based on its P/E ratio of 49.7, which is exceptionally high. However, it’s critical to consider that this is a growth stock, and we thus need to look at P/E out of isolation.

The price-to-sales ratio is a useful metric to use when analyzing a growth stock, as is the CapEx-to-sales ratio. The first examines whether the price is justified by current sales, while the latter estimates if the firm’s value is being increased through earnings reinvestment.

Canadian Solar’s price-to-sales ratio is at an 87.3% discount to its sector, and its CapEx-to-Sales ratio is outpacing its peers’ by 222.3%. Thus, I think this is a growth stock at a reasonable price.

Hedge Funds & Wall Street’s Take

Since CSIQ is a volatile stock, it’s useful to look at hedge fund activity because hedge funds are volatility-seeking investors. Based on Tipranks’ 13-F filings tracker, hedge funds are very positive about the stock. In fact, they added 690,300 shares of Canadian Solar to their portfolios during the last quarter.

Wall Street thinks the stock is a Moderate Buy, with an average Canadian Solar price target of $40.33, implying 0.3% upside potential. There have been two Buys and one Sell assigned in the past three months. The latest analyst to have provided coverage is J.B. Lowe of Citigroup, who thinks the stock will reach $51.00.

Canadian Solar Concluding Thoughts

As things stand, Canadian Solar will receive further systemic support through the U.S.’s infrastructure bill. The company is the market-leading supplier of interface models and has many pipeline projects in store. The stock remains at a reasonable price considering its robust growth.

Disclosure: At the time of publication, Steve Gray Booyens owned shares of CSIQ.

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