ReneSola Stock: Metrics Paint Grim Picture

© Reuters. ReneSola Stock: Metrics Paint Grim Picture

ReneSola Ltd. (SOL) designs, builds, operates and sells solar power projects in the United States and Europe.

I am bearish on the stock. (See SOL stock charts on TipRanks)

The PolySilicon Crisis

After falling rapidly for over a decade, Solar module prices have taken an upturn for the worse in 2021.

The catalyst for the higher cost of production is the shortage of polysilicon. This was initially caused by pandemic supply chain disruptions, and subsequently amplified by panic buying, as manufacturers' fear of implied inflation intensified.

Renesola has definitely felt macro-economic factors as it recently missed its Q2 revenue estimate by $2.22 million, and reduced its initial Q3 revenue guidance to $19 million to $21 million, from its previous estimate of $26 million.

Valuation Metrics

From a valuation vantage point, the stock's price is inflated. Relative to the sector, its EV/EBITDA (50.9) is overvalued by 258.9%, and its price-to-sales (5.2) is overvalued by 228.2%.

A PEG ratio of 29.6, and a forward PEG of 31.4, means any argument for hypergrowth would be invalid.

Ideally, you'd like your PEG to be at or below 1.0, as this indicates that the company's growth justifies the price that the stock's trading at.

Wall Street's Take

Wall Street thinks the stock is a Moderate Buy, with two Buys, and one Sell assigned in the past three months. The average SOL price target of $11.35 implies 58.7% upside potential.

Most analysts see the PolySilicon crisis as transitory and think that the U.S. infrastructure bill and net-zero emissions push will support ReneSola.

On the other hand, the renewable energy space is becoming increasingly competitive. Stocks won't simply do well because of an industry trend, and they need to justify performance with high-quality pricing and valuation numbers, which ReneSola doesn't have at the moment.

Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.

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