First Solar displays strong management, and it’s impressive compared to peers on several key metrics:
| Metric | SunPower | First Solar | Suntech |
|---|---|---|---|
| Net Margin | (9.00%) | 11.37% | (44.18%) |
| ROE | (23.44%) | 11.98% | (86.50%) |
| Debt-to-Equity Ratio | 0.93 | 0.15 | 2.82 |
Source: Company filings.
Net margin is a good indication of strong management. ROE is often the first metric looked at by investors, as they want to know how much a company profits with the money they invested. As far as debt goes, if the economy happens to falter, then its quality debt management will likely allow First Solar to weather that storm better than most peers. SunPower’s debt-to-equity ratio is slightly higher than the industry average of 0.6, but it’s not overly concerning.
Extremely high risk
If you think SunPower and First Solar are high-risk, then you haven’t seen anything yet. If you would like to attempt to hit a 300-foot home run with a Wiffle Ball bat, then perhaps Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP) is for you.
Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP) is a Chinese-based solar company with many problems. Earlier this year, it defaulted on a $541 million bond payment. This was after the Chinese government cheered Suntech to be a future leader in solar power. SunTech has also been hit by anti-dumping tariffs against Chinese solar companies in the United States, and Europe might be soon to follow. Furthermore, SunTech hasn’t been consistent releasing quarterly reports, and it’s always close to not meeting NYSE compliance.
Suntech intends to restructure to improve its balance sheet and operations, but because of the reasons listed above, the odds of this company making a successful turnaround and outperforming the aforementioned peers over the long haul are very unlikely. SunPower’s stronger management, partnerships with homebuilders, and financial backing from Total all give it a big advantage over Suntech.
Conclusion
Unless you’re looking to increase your odds of a premature heart attack, you might want to consider avoiding Suntech. First Solar and SunPower, however, are both on the right track. That said, investing in these stocks isn’t for the faint of heart.
The best way to play this is to commit a small amount of capital to to SunPower or First Solar, and let that position sit for a very long time. Try not to look at the stock price often. Doing so may lead to overconfidence or frustration.
The article Why This Solar Stock Might Present a Bargain originally appeared on Fool.com and is written by Dan Moskowitz.
Dan Moskowitz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
Dan 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.
