At the same time, SunPower Corporation (NASDAQ:SPWR) isn’t expected to turn a profit immediately. Even with a gross margin of 15.2% its EBIT margin is still -10.2%. The firm’s use of leasing programs and relations with a number of U.S. firms shows that it continues to make headway at home. Over the long term, their focus on utility scale installations should pay off, but for now utilities remain conservative.
Two Companies to Avoid
Canadian Solar Inc. (NASDAQ:CSIQ) is laden with risk and debt. Its total debt to equity ratio of 2.85 is very high. A look at its return on investment is not very encouraging either; at -24.00%, Canadian Solar has the worst return on investment of any of the firms mentioned here. The company has recently announced new projects in North Carolina and Tanzania, but these projects are not significant enough to change the prospects of the firm. Even at a price to book ratio of 0.42, it is best to ignore Canadian Solar.
Yingli Green Energy Hold. Co. Ltd. (NYSE:YGE) is a major Chinese solar producer with a huge advantage on its home turf. Economics in China is never about pure profit. Social stability through job creation is a major goal of the Communist Party of China. Yingli Green Energy Hold. Co. Ltd. (ADR)benefits from government support through cheap loans and the ability to sell its low cost products in China. Tariff warfare between the U.S. and China only increases Yingli’s advantage.
The company as a whole is laden with debt, given its total debt to equity ratio of 4.39. Indeed, with a return on investment of -15.0% and EBIT margin of -27.5%, the Chinese government has kept Yingli Green Energy Hold. Co. Ltd. (ADR)alive. The company may become a profitable investment, but it is unclear how it will survive the removal of excess capacity in the industry. A successful investment in Yingli Green Energy Hold. Co. Ltd. (ADR)requires an in-depth understanding of China and how its government picks winners and losers. This political aspect makes Yingli an investment better left for China experts.
Investing in solar manufacturers is not a carefree feat. You must be willing to endure a couple years of stress until the market really comes back. With that said, First Solar, Inc. (NASDAQ:FSLR) and Sun Power are two good manufacturers to consider given their strong gross margins and manageable debt loads.
The article Are You Ready for Solar’s Growth? originally appeared on Fool.com and is written by Joshua Bondy.
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