Diversified Solar Energy for Your Porfolio
Piyush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Post the crash of the 2008, majority of the people around the globe either lost their jobs or had to deal with pay cuts. Add Europe to the recipe, and austerity drive becomes imminent for millions of households across the globe. For a world that has a need to save on its expenses, there must be a business model that caters to this need. GT Advanced Technologies (NASDAQ: GTAT) is that company and here are a few reasons why you should be bullish about it.
GT Advanced Technologies is a global provider of poly-silicon technology, photovoltaic manufacturing services and sapphire growth systems. The business model of the company revolves around saving electricity costs, with a diversity of technologies to do so. The company is involved in servicing the solar energy industry along with manufacturing LED lighting solutions. The sapphire business accounts to 43% of the revenues of GT Advanced Technologies and this highlights an even spread of topline in its diversified different business segments.
The company faces competition from MEMC Electronics (NYSE: WFR), Trina Solar (NYSE: TSL) , Applied Materials (NASDAQ: AMAT)and SunPower Corp. (NASDAQ: SPWR) The common thing about all of its competitors is that they are all involved in providing solar modules for electricity generation using solar energy. There has been an oversupply of solar modules in the market which has stressed the profitability of these companies. It is due the diversified business operations of GT Advanced Technologies, that the company was able to post positive results unlike its competitors.
In a bid to beat the competition in solar, GT Advanced Technologies acquired Confluence Solar for $60 million. The company believes that the acquisition could prove to be a game changer for the company, as after the acquisition GT Advanced would be able to provide solar technology that all silicon cell makers wish to have.
The company in its recent results reported a decline in revenues owing to the oversupply of solar equipment in the market. The earnings however beat the market expectations, when the EPS stood at $0.16 a share compared to the expected $0.6 a share. Basically the numbers were flat and we recommend only long term investors to look at this stock.
|
Company |
Net Profit Margin |
Debt/Equity |
ROI |
Forward P/E |
|
GT Advanced |
16.38% |
0.42 |
24.59% |
4.92x |
|
MEMC Electronics |
-64.9% |
3.35 |
-45.5% |
11.7x |
|
Trina Solar |
-13.6% |
1.27 |
-13% |
N/A |
|
Applied Materials |
11.67% |
0.23 |
9.94% |
14.13x |
|
Sun Power Corp |
-25.6% |
0.72 |
-26% |
12.70x |
By comparing the financial metrics of all the companies, we can see that GT Advanced has the highest net profit margins, along with the highest returns on its investments. The company appears to be the most undervalued stock amongst the peers, and to add to it has the second best debt/equity levels. The shares of GT Advanced trade at 8.3x trailing P/E which indicates that the stock is undervalued.
The solar module industry no doubt looks challenging and risky, and in a bid to reduce the risks, GT Advanced has diversified its operations. In order to expand and beat the market competition, the company recently acquired Confluence Solar. The financials look flat but the fundamentals look great. Everything seems to be going fine with the company, and the entity looks well poised to take advantage of the growth in both solar panel industry and LED lighting solutions businesses. We believe that the long term investors have an opportunity to enter the stock while it’s still available at cheap valuations
PiyushArora has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
