A Quick & Sudden Gain For This Small Solar Company
Real Goods Solar, Inc. (NASDAQ:RSOL) is a $180 million solar energy company that serves commercial, residential, and utility customers. After Monday’s gains of more than 50% the stock has now accumulated a two-day gain of 300%. Why is this company racking up such scorching gains, and is it an investment opportunity?
As crazy as it may seem, there was no catalyst for its rise — nothing except for an article from a new SeekingAlpha contributor, which apparently led to this massive 300% two-day rally.
In the article, Andy Zelenak calls Real Goods Solar, Inc. (NASDAQ:RSOL) a potential “diamond in the rough,” and presents it as an investment alternative to SolarCity. In the article, Zelenak identifies two potential catalysts: a partnership with Lennar Corporation as a “strategic supplier” of solar equipment, and their new “PowerOn” pre-engineered solar modules.
After several reads, I can’t find anything in Zelenak’s article that would trigger a rally. It contained no new information — simply speculation about what “could” happen if the company catches every break and if all dominos fall in its favor. I’m not so optimistic, and I feel confident that investors could get hurt if things go badly for Real Goods Solar.
The company’s business plan involves no-money-down leases in a volatile solar pricing market, and it has serious liquidity issues. Real Goods Solar, Inc. (NASDAQ:RSOL) needs to extend its maturity date of its revolving line of credit with Silicon Valley Bank; it’s already said in its latest 10-Q that it doesn’t have sufficient funds to repay its debt.
That leaves Real Goods Solar, Inc. (NASDAQ:RSOL) with virtually no cash, mountains of debt, and — until its recent 300% two-day gain — no value in its stock. I’d expect significant dilution in the coming days, maybe weeks if investors are lucky, if Real Goods Solar, Inc. (NASDAQ:RSOL) issues and sells its newly valuable stock to replenish its coffers.
On a final side note, this was a $15 million company last year. Now it trades at $181 million. If you must invest in this stock — and I wouldn’t — be very careful.
This Company’s Comeback Story Keeps Getting Better
After JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO) announced earnings on Monday morning, its stock rose 6% in premarket hours, and then kept climbing throughout the day. It’s currently at new 52-week highs, with a 64% post-earnings gain.
In the quarter, JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO) posted revenue growth of 4.7% or $270 million ($41 million better than estimates), and a loss of $0.85 per share ($0.35 better than the consensus). With such a massive beat, it’s quite easy to see why the market is responding so favorably.
Although the company did post an eighth consecutive quarterly loss, and did see photovoltaic panel prices decline, it also showed huge progress that suggests future improvements. The company’s total shipments rose 20.9%, easily topping expectations.
Furthermore, gross margins rose 6%, with 38% of its module shipments sent to Japan. To many, this is the most important news from the quarter, since Japan has much more stable pricing and produces greater margins than China.
If we look at JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO) as an investment, it is trading at just 0.21 times sales, but still operates with a fundamental loss. However, unlike Real Goods Solar, JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO) has more than $450 million in cash and cash equivalents, according to Monday’s quarterly report. The $375 million in cash on its balance sheet actually exceeds its market cap. In addition, its debt-to-assets ratio under 50% isn’t good, but isn’t dangerous, either.
If you’re looking for a high-risk, high-reward investment, JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO) might be a good pick. Personally, I wouldn’t invest too much, but if the company continues to see improvements, it could definitely lead investors to big gains.
Conclusion
After five years of depressing losses, many investors don’t seem to believe the solar space can improve. Yet after earnings from JA Solar, First Solar, and Sun Power among others, it is obvious that solar is making a comeback. The key now is to properly assess each company, and separate the contenders from the pretenders.
In my opinion, a mix of fundamental performance and rock-bottom expectations legitimately drove JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO)’s rally. But Real Goods Solar, Inc. (NASDAQ:RSOL) is definitely a pretender at this point, seeing strength only because of its association with solar. Hence if I were looking for an investment, I’d definitely go with the company that has the capital to manage any future volatility: JA Solar.
The article Are Monday’s Monster Moving Solar Stocks A Buy? originally appeared on Fool.com and is written by Brian Nichols.
Brian Nichols has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
