Is Canadian Solar Stock A Buy?

Canadian Solar Inc. (NASDAQ:CSIQ) is a photovoltaic panel manufacturer that’s involved with large-scale solar installations. And don’t let the name fool you – it has a global footprint that spans well beyond Canada’s shores.

It sells products to major organizations around the globe, so is Canadian Solar stock a buy?

Solar energy is a solid growth sector, especially when paired with more widespread electric vehicle adoption. And analysts believe the next few years will see heightened focus on sustainable solutions like renewable energy.

Although based in Canada, it does operate in the United States, and even that situation is easier after a flurry of executive orders. It’s a mid-priced stock in its field, which also includes SunPower Corp (NASDAQ:SPWR) and Enphase Energy (NASDAQ:ENPH).

It also received backlash for a 2021 report about its Xinjiang, China solar farm. The farm’s location near a Uyghur re-education camp drew the attention of the Human Rights Foundation and Canadian Prime Minister Justin Trudeau.

Will Canadian Solar will shine for its investors or leave them burned with renewable solar wounds?

Canadian Solar Has Customers In 150 Countries

Canadian Solar is a Guelph, Ontario-based manufacturer of solar modules that services customers in over 150 countries. It was founded in 2001 and as of the end of 2020 delivered about 52 GW of photovoltaic modules around the world.

It doesn’t just sell you solar panels and walk away – these are industrial, commercial, and government projects with full lifecycle service. It includes planning and development, getting all necessary permits, design and engineering, and regular maintenance.

This provides a full turn-key solution for customers and relatively predictable revenue streams for investors. It has 16.3 GW of solar projects in its pipeline, along with 6 GW of storage projects, with a goal to reach 20 GW of shipments by the end of 2021.

So far, its sustainability report says it reduced CO2 emissions by about 40 million metric tons.

The company continuously researches ways to optimize PV modules and holds over 1,500 related patents around the world, with another 2,400 applications. This could make it a valuable supplier in a world dominated by Tesla Inc’s (NASDAQ:TSLA) EVs.

Sustainable energy is a hot investment in the 2020s, but elevated share prices have some investors wondering if solar may be too expensive to buy in now.

Is Canadian Solar Stock A Buy?

Canadian Solar started 2021 with a record-high market capitalization of over $3.7 billion and a P/E ratio of around 18x. 

In the third quarter of 2020, it shipped 3.2 GW of solar modules, which drew $914 million in revenue. It earned $8.8 million in profits off of that, after paying out $12.6 million in a Chinese tax expense related to its Module and System Solution subsidiary.

The company increased its manufacturing capabilities while securing 860 MWp in Brazilian power purchase agreements. It held debt of $2.15 billion heading into the pandemic winter, compared to $1.10 billion in cash.

That debt will undoubtedly give some investors pause to investigate its ability to pay. It’s one of the world’s largest and most successful solar manufacturers, and it’s still struggling to generate big profits. The company’s earnings per share are driven by revenue per watt.

It highlights some of the risks of investing in solar stocks.

Canadian Solar Growth Rate Not Stellar

Solar is a big buzz from sustainability groups, and it is a growing market. However, it’s not growing as fast as its investors may have hoped. Every government has its own solar laws due to local power company lobbying and ideas of its usefulness.

Canadian Solar stock had a rocky road over the past 20 years as market sentiment changes. Looking at CSIQ stock chart isn’t much different than looking at (insert your favorite cryptocurrency) thanks in large part to turbulent investor sentiment.

And even environmental groups have warnings about solar.

Although solar is often cited as great for the environment overall, there are negative environmental impacts involved too. PV cell manufacturing involves toxic chemicals, and some fluids used in solar thermal systems are hazardous to the environment, according to the U.S. Energy Information Administration.

Not only that, but lithium batteries used for solar power storage have a corresponding environmental cost not much different than oil or shale oil mining.

The company also faces stiff competition.

Canadian Solar Isn’t The Only Bright Light

Canadian Solar has a slew of competitors, like First Solar (FSLR), SunPower (SPWR), and Enphase Energy (ENPH). Each of these companies competes for contracts with an oversupply of solar.

The industry is its own worst enemy because panels can last 20 years versus daily needs for resources like coal. This bottlenecks the earning potential and makes it crucial to continue finding new revenue paths to upsell.

If one of these companies should control enough patents, they could boost licensing revenue. However, Canadian Solar isn’t the only one applying for and securing various industry patents. Should the world continue its path toward computerized everything, solar will be more necessary to supply power.

But that could be a long road ahead with a lot of ups and downs in the market until then.

Is Canadian Solar Stock A Buy? The Bottom Line

Canadian Solar is one of the leading manufacturers of photovoltaic solar modules and systems. It works with enterprise and government clients to design, source, install, and maintain industrial-scale solar systems.

But solar has a double-edged sword for investors. On one hand, it’s an essential and sustainable source of renewable energy. This makes it a popular investment and sent share prices across the market soaring. On the other, profits are slim.

The company has high debt levels, and long-term success appears to already be baked into the entire industry’s market valuations.

Be careful investing in solar – it’s beating oil, but you may get burned at today’s premiums.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.