Why Canadian Solar Stock Finally Popped Today
Key Points
Canadian Solar beat on the top and bottom lines yesterday, but its stock barely budged.
Now that the stock market sell-off is over, investors are rewarding Canadian Solar for its "beat."
The stock's still unprofitable, though, and looks richly priced.
- 10 stocks we like better than Canadian Solar ›
It took a minute, but Canadian Solar (NASDAQ: CSIQ) stock is finally reacting positively to the earnings report it released yesterday -- just before the stock market sold off and hobbled the solar stock's rally.
After gaining just 0.5% yesterday, Canadian Solar stock is up 17.5% through 1:40 p.m. ET today.
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Canadian Solar Q3 earnings
Not all the news is good. The company reported $0.58 per share in losses for the quarter on $1.5 billion in revenue. Then again, analysts had forecast steeper losses ($1 a share) on less revenue ($1.4 billion). So Canadian Solar ended up "beating earnings" -- and this is what investors are cheering today.
Not all the news was great. Solar module shipments declined 39% year over year. Still, revenue declined only a modest 1%, the reason being that while module sales fell, sales of battery energy storage systems grew nicely. These batteries also appear to generate better profit margins for Canadian Solar because gross profit margin at the company expanded 80 basis points, to 17.2%.
Operating costs declined, moreover, with the result that Canadian Solar's GAAP net income was only a $0.07 loss -- much better than the pro forma loss of $0.58 per share.
Is Canadian Solar stock a buy?
Management is guiding for steady-state revenue in the range of $1.3 billion to $1.5 billion in Q4, and the company hopes to sell between 4.6 gigawatts and 4.8 gigawatts worth of solar modules in the quarter and about half that amount in batteries -- 2.1 gigawatt-hours to 2.3 gigawatt-hours.
Still, gross margins are expected to fall, and Canadian Solar will probably end up losing money this year. At a $34 share price and with next year's earnings estimated at just $1.11, the stock looks too expensive to buy.
Should you invest $1,000 in Canadian Solar right now?
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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