The coming days will be a clash between two opposing forces for our favourite solar play Trina Solar (TSL). On the one hand, we have very favourable company forces at work. We had a prime analyst increasing it’s earnings estimates for 2008 to $4.05 per share, implying a p/e of 10.
Realize that this is a company which grows not at double, but still at triple rate. 2007 earnings per share were $1.47, according to Cowan (the influential analyst that made that $4.05 call) they are set to almost triple this year.
Then came other good news, Trina is abandoning its plans for a polysilicon plant. A good idea, as by the time it will be ready, we will likely have moved from a shortage to a glut of polysilicon (a situation which will have many interesting implications which we will discuss in the coming days).
This removes the financing and dilution uncertainty, and the market was not happy about that plant, as a 13% rally testifies when they announced abandoning it.
Some help also come from record oil prices, although we have to admit that we expected this to have a stronger influence on the solar sector. When they all sold off in the first six weeks of 2008 on recession worries, the only possible mechanism we could imagine a recession would negatively impact the solars was through lower energy demand and hence a fall in energy prices, making solar energy relatively more expensive.
That didn’t happen (the understatement of the year, so far), but we still think oil should impact the solars. After all, they are substitutes, albeit imperfectly so, as there are few cars that we are aware off that are propelled by solar panels.
With those favourable forces in its sails, we would expect Trina to continue rally, at least to the 200 day moving average around 46-7, especially as it took a healthy breather today.
But, alas, investing (or trading) is never quite that straightforward. The markets rule, and we still don’t trust them for a minute. Tomorrow we get the consumer price index which might throw sand in the wheels of any smooth progress Trina would otherwise make.
Intel had pretty good results though (down a little in after markets though), which might calm the markets for now if we don’t get a nasty surprise from the consumer prices.
So hold a base position and wait for green lights from the markets, or a break-out above the 200 day moving average before accumulating some more.