Climate change awareness has brought about a new wave of demand for photovoltaic solar panels. With solar energy proven to be the most efficient clean energy for commercial use in the market, along with its relatively lower maintenance costs, most countries are currently in the process of upgrading their industries to solar powered manufacturing hubs.
This comes following the Paris accord, wherein most countries jointly agreed to reduce their carbon emissions to battle climate change. Though the United States officially withdrew from the agreement on November 4th under the Trump administration, the tide could be changing as clean energy activist Biden is likely to win the election, which raises the chances of the U.S. possibly re-joining. SunPower Corporation (SPWR), one of the biggest names in the domestic solar industry, has gained 17% since November 3rd, as Biden edges victory.
Despite the political headwinds faced by this industry, individual awareness regarding climate change has incentivized some of the biggest companies in the world to go green over the next couple of years. In this regard, China, the biggest coal consumer and carbon dioxide producer in the world, announced its plan to go carbon neutral by 2060. This requires major restructuring of its existing industrial base, as well as developing numerous new power plants to shift from carbon emissions to clean energy completely. This bodes well for Chinese solar PV manufacturer JinkoSolar Holding Co. Ltd. (JKS), which is currently planning on listing its subsidiary on the Chinese NASDAQ equivalent STAR exchange.
Both companies have generated significant returns over the past three years. While JKS gained 1,736% over this period, SPWR returned 124.4%. In terms of year-to-date performance, JKS is the clear winner with 221.7% gains versus SPWR’s 148.6% gains.
But which stock is a better buy now? Let’s find out.
JKS is one of the leading solar module manufacturers in the world, with a global supply chain. It has strategic business tie ups with the biggest manufacturing hubs across the world. JKS successfully built solar power plants and modules across China, Vietnam, and Japan within the past couple of months.
The company signed an agreement to supply bifacial solar modules for the Kozani project, the biggest solar project in Europe. It was accredited as the World’s most bankable PV manufacturer by Bloomberg New Energy Finance.
Given China’s plan to go carbon neutral by 2060, JKS announced its strategic plan to gain better access to the economy by listing its subsidiary Jiangxi Jinko on Shanghai’s STAR stock exchange. It has already raised $458 million as of October 30th for this listing.
SPWR has extended its operations to China in light of its go green initiative raising the demand for solar power. The companies signed a manufacturing and services contract worth RMB480 million with China Huanqiu Contract & Engineering Corporation, which is a subsidiary of China National Petroleum Corporation.
To boost its sales among retail customers, SPWR introduced low APR loans for residential solar customers. By extensively lowering the financing costs, SPWR should witness a rising demand for its residential solar products as awareness regarding climate change is rising within the country.
Recent Financial Results
JKS’ revenue increased 22.2% year-over-year to RMB 8.45 billion in the second quarter that ended September 2020. Net income grew 153.6% from the same period last year to RMB 318 million, while EPS rose 73.7% to RMB 8.46.
SPWR’s non-GAAP revenue rose 26.1% sequentially to $275 million in the third quarter that ended September 2020. Net income increased 473.7% year-over-year to $109 million, while EPS grew 375% to $0.57.
Past and Expected Financial Performance
JKS’s revenue and EBITDA grew 25% and 80%, respectively, year-over-year. This compares to SPWR’s 70.5% and 105.8% growth in revenue and EBITDA, respectively, over the same period.
Analysts expect JKS’s EPS to grow 15.2% in the current year, and 11.1% next year. The company’s revenue is expected to rise 20.5% next year.
SPWR’s EPS is expected to rise 20.7% in the current year, and 256.5% next year. Consensus revenue estimates indicate 19% improvement next year.
Thus, SPWR has an edge over JKS here.
JKS’ trailing 12-month revenue is 2.45 times what SPWR generates. JKS is also more profitable with a gross margin of 19.1%, compared to SPWR’s 7.3%.
JKS’ ROE and ROA of 11.8% and 3.3%, respectively, compare favorably with SPWR’s negative values.
In terms of forward P/E ratio, SPWR is currently trading at 31.13x, 58.7% higher than JKS, which is currently trading at 19.61x. SPWR is also more expensive than JKS in terms of trailing 12-month price/sales (1.64x versus 0.67x).
Thus, JKS is the more affordable stock here.
SPWR is rated “Buy” in our proprietary POWR Ratings system, while JKS is rated “Neutral”. Here’s how the four components of overall POWR Ratings are graded for each of these stocks:
SPWR has a “B” for Trade and Peer Grade, and a “C” for Buy & Hold Grade and Industry Rank. It is also ranked #3 out of 16 stocks in the Solar industry.
JKS has a “C” for Trade Grade, Peer Grade, and Industry Rank, and a “D” for Buy & Hold Grade. It is ranked #6 in the same industry.
With higher revenue and earnings growth potential, SPWR is favored as the better buy here. Though JKS has established itself as an industry leader in this domain, SPWR’s increasing market is clearly reflected in its impressive year-over-year growth of financial metrics. With most United States based companies announcing their pledge to shift to clean energy sources, the SPWR should witness huge production and revenue growth.
Investing in SPWR indicates a higher capital gains prospects for investors given its projected growth rate, as the company is significantly lower-priced compared to JKS.
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JKS shares were trading at $65.05 per share on Friday afternoon, down $7.30 (-10.09%). Year-to-date, JKS has gained 189.24%, versus a 10.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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