Which is Best Performing Solar Stock in 2012 and Why

Solar Stocks have declined quite precipitously from the peaks reached in 2008 and a number of the top guns of that time are flirting with pennydom. After a boom in solar installations and prices in 2010, the last two years have been cruel to the whole solar sector. The biggest solar cell company in 2008 is now bankrupt while some of the DOE recipients like Solyndra, Abound Solar have also shut down. The brutal consolidation in the industry has not ended with companies continuing to exit the business almost every week. It is expected that 2013 would be another down year for solar stocks due to the global solar panel wars and overcapacity. The year is coming to an end and it’s a good time to analyze how the solar stocks have performed year to date. This analysis is restricted only to US listed solar energy companies (not the IPOs and companies which don’t have a big chunk of their revenues coming from solar energy).

Only 4 solar stocks with a market capitalization > $50 million have given a positive return YTD

Our stock analysis shows that only 4 stocks with a market cap greater than $50 million have shown a price appreciation. Canadian Solar (CSIQ) has also done reasonably well with >27% return, while Renesola (SOL) which we have already analyzed has shown a mid single digit price increase. Power- One (PWER) which is the world’s second largest solar inverter company has shown a ~5% return while the clear winner is Jinko Solar (JKS) with a 34% price increase. Most of Jinko’s price return has come in November and December. This has been mainly due to a slew of good macro and micro level news.

Ascent Solar (ASTI) has shown the greatest price increase of 73%, but the reason for this increase was its being bailed out from an inevitable bankruptcy by a Chinese construction conglomerate. The Asian conglomerates have been gobbling up distressed solar technology startups in Europe and US.

Worst Performing 2012 Solar Stocks

While there are few contenders for the best performing solar stock in 2012, there are a number of contenders for the worst performing crown. If you have not guessed it yet, LDK Solar (LDK) is the worst performing solar stock till now (65% decline) with STRI a close second.GT Advanced Technologies is also amongst the worst performers with a 60% decline. Others like Suntech (STP), Yingli Solar Energy (YGE) and Trina Solar (TSL) have performed quite badly as well (down between 40%-50%)
Note : Analysis done on Dec 20, using Google Finance

Why Jinko has been the best performing solar stock

Jinko Solar’s stock has jumped up quite sharply in the 4th quarter mainly due to a combination of good quarterly results, big project wins and supportive Chinese government moves. We summarize some of those factors below.

a) Good 3Q 2012 quarterly results – Jinko Solar was one of the very few solar companies globally to show a positive gross margin this quarter. The company also managed to sharply reduce the processing costs to become one of the global cost leaders in crystalline solar panel production. This helped the company to show a positive GM when some of its peers are reporting high double digit negative GM.

b) Huge Project Wins – Jinko Solar has announced a number of big project wins in the past 6 months. This has made the company more acceptable as a bankable solar panel supplier. The biggest risk these days for a solar project investor is that his solar panel supplier will go bankrupt and not be able to service the 25 year warranty. By winning huge projects, Jinko Solar has managed to gain the trust of big utility developers.

c) $1 billion credit line from China Development Bank – Jinko Solar has got the Chinese government badge of acceptance by winning a billion dollar credit line from CDB. This is one of few such announcements made this year. Shows that the Chinese central government considers Jinko Solar a good bet for the long run.

d) China’s support for domestic solar panel producers – The Chinese government has recently made a number of moves to support its failing domestic solar panel companies. These include doubling the solar target, increasing the grants given for the Golden Sun subsidy program and prodding the State Grid Company in giving easier and free access to the grid for solar projects.

Summary

While Jinko Solar has shown a nice comeback in the closing months of 2012 to become a top performer, it is not necessary that it will remain the top dog in 2013. The Solar Industry is one of the most dynamic and fastest growing industries. Competition is fierce and technology can rapidly make a company obsolete (lots of solar thin film companies would attest to that). It requires not only astute management but also a huge amount of luck just to survive. It would be a very brave investor who would wager that the best performer in 2012 would repeat its performance in 2013 as well.