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Buy Trina Solar

June 9th, 2008 · No Comments

This sell-off is pretty ridiculous. The only worry is that polysilicon cost could rise 5-10% the coming quarter. Trina sold of from the low 50s and is now at 40 on that, apparently. Against that we have a host of arguments.

1) They have already contracted for more than 95% of their polysilicon cost for 2008, so the rise would affect only a small part of it’s cost base

2) They’re executing very well, in the past quarter, increasing polysilicon cost were more than offset by increasing efficiencies, gross margin’s were ahead of what they guided, at 25.8%

3) Top-line growth is deep into triple digits

4) Guidance for this year was increased

With operating margins of 15-17% expected on revenues of $770 to $808 million. Taking the midpoint on sales and margins ($789 million times 16%) yields operating income for this year of $126 million. Utilizing the same interest cost and exchange losses as just reported but annualizing them equals a cost of about $24 million and taxes at 4.92% (announced on the call) adds up to $6 million, yielding earnings in 2008 of $96 million, or $3.79/sh, yielding a PE of about 12 against the current trading price of about $46.

5) At $40-41, this has a 2008 p/e of 11. That for a company which displays top and bottom line growth in the triple digits (and 50% growth should be easily attainable next year), it once again gets pretty ridiculous.

Tags: TSL