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Contrarian Shines a Light on JA Solar
02/26/2015 10:00 am EST
Our latest recommendation focuses on the formerly red-hot solar sector, which has been out of favor for a while, explains Nicholas Vardy, editor of Bull Market Alert.
Although based in Shanghai, JA Solar Holdings Co. Ltd. (JASO) is not your typical China solar play, as it has only 35% of its revenue coming from China.
First, despite solar stocks themselves falling out of favor, solar remains a rapidly growing industry. In the United States alone, solar capacity has expanded 5x just since 2011.
JASO itself is a global business, having long-term strategic partnerships with companies like SunEdison, British Solar, and China Huaneng Group.
Second, JASO itself is growing by leaps and bounds. Sales in the most recent quarter increased 71.8% in dollar terms, up from 52.9% and 35.7% growth in the two prior quarters, respectively.
The company also has been growing its margins, increasing its profitability even more.
Still, the company is surprisingly cheap.
JASO trades at a forward price-earnings (P/E) ratio of only 5.77x earnings versus an average of 20.7x for its peers. And it trades at just 0.54x book value, a 50% discount compared to its peers at 1.0x.
Third, the solar sector is dogged by poor sentiment, terrific news from a contrarian standpoint. Investor’s Business Daily ranks the group a lowly 191 out of 197 groups it tracks.
JASO is set to report its fourth-quarter 2014 results in mid-March. The omens are good. JASO has delivered an average positive earnings surprise of 237.25% in the last four quarters, beating estimates in three of the last four quarters.
And the average analyst has a $14 price tag on JASO. That’s a whopping 57% above its current price. Buy JA Solar Holdings at market and place your stop at $7.25.
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