Top ‘Magic Formula’ Solar Stoc

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Joel Greenblatt (Trades, Portfolio) introduced the “magic formula” to the investment world when it published its bestselling book “The Little Book that Beats the Market” in 2005. The idea behind the magic formula is to apply a simple mathematical formula for finding profitable businesses. which trade at bargain prices.

The formula ranks companies primarily on two metrics: return on earnings and return on capital. Earnings yield, which Greenblatt defines as earnings before interest and taxes (Ebit) divided by company value, measures how much the company earns relative to the market’s stock value. Return on capital, which is calculated as Ebit divided by the sum of net fixed assets and net working capital, measures how much a business earns relative to what it spends to generate that revenue.

While the clean energy market is expected to grow at a compound annual growth rate of 8.4% through 2030 according to a report by Allied Market Research, which could accelerate further due to Russia’s war against Ukraine, here are four solar stocks that rank highest among their peers according to the GuruFocus Magic Formula Screen, a filter based on Greenblatt’s criteria.

First Solar

First Solar Inc. (FSLR, Financial) has a return on capital of 16.45% and a return on earnings of 9.43%, placing it among the top 10 solar stocks according to the magic formula.

GuruFocus gives the stock a financial strength rating of 9 out of 10 based on a Piotroski F-Score of 7 out of 9 and a leverage ratio of 4.58. The profitability score is 7 out of 9 thanks to a growth rate of turnover per share over three years of 8.9% and a growth rate of EBITDA per share over three years of 45.9%.

The shares traded around $72.15 on April 26 for a market capitalization of $7.73 billion and a price-to-earnings ratio of 16.55. The GF value chart values ​​the stock as being at its fair value:

First Solar is an Arizona-based semiconductor company that manufactures large-scale solar panels and photovoltaic power plants. It also provides support services for its systems, including maintenance, construction, financing and recycling of end-of-life panels.

Due to increasing competition in the project development business, First Solar exited this business to focus on expanding its more profitable solar panel manufacturing business, which it hopes will improve efficiency. operational and industry reputation.

Enphase Energy

Enphase Energy Inc. (ENPH, Financial) has a return on capital of 111.35% and an earnings return of 0.81%, placing it among the top 10 solar stocks according to the magic formula.

The stock receives a financial strength rating of 6 out of 10 from GuruFocus, with a low interest coverage ratio of 4.78 offset by a strong Altman Z-Score of 8.79. Profitability rating is 4 out of 10; the return on invested capital has exceeded the weighted average cost of capital in recent years, a sign of value creation.

Enphase traded at approximately $153.44 per share on April 26 for a market cap of $20.79 billion and a price-to-earnings ratio of 150.99. The GF value chart rates the stock as slightly overvalued:

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Based in Fremont, California, Enphase designs and manufactures residential and commercial software solutions for solar power generation, home energy storage, and web-based system monitoring and control.

Enphase is trading at high valuation multiples thanks to strong investor enthusiasm for its growth momentum. With its “next-generation” software-based solar solutions, it has achieved a three-year revenue per share growth rate of 45%, although any shortfall can lead to price volatility.

SolarEdge Technologies

SolarEdge Technologies Inc. (SEDG, Financial) has a return on capital of 26.06% and a return on earnings of 1.48%, placing it among the top 10 solar stocks according to the magic formula.

It earns a 7 out of 10 rating from GuruFocus on financial strength due to factors such as a strong interest coverage ratio of 15.4 and an Altman Z-Score of 6.97. The company’s profitability is rated 8 out of 10, driven by a three-year revenue per share growth rate of 21.6% and a three-year EBITDA per share growth rate of 9.9 %.

On April 26, SolarEdge shares traded around $244.76 each with a market capitalization of $13.49 billion and a price-earnings ratio of 79.75. The GF value chart values ​​the stock as being at its fair value.

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SolarEdge Technologies is an Israeli photovoltaic company that mainly produces power optimizers, solar inverters and monitoring systems that aim to increase the energy production of solar panels.

This company has been a go-to component supplier for residential solar installers for the past decade. It has also expanded into commercial solar and energy storage, as well as electric mobility solutions in Europe.

Canadian Solar

Canadian Solar Inc. (CSIQ, Financial) has a return on capital of 6.09% and a return on earnings of 4.86%, placing it among the top 10 solar stocks according to the magic formula.

GuruFocus gives the stock a rating of 5 out of 10 for its financial strength. The Piotroski F-Score of 3 out of 9 and Altman Z-Score of 1.21 show some financial distress. The profitability score is 6 out of 10 thanks to expanding margins and a ROIC recently surpassing the WACC, indicating a shift to value creation.

Shares of the stock traded around $27.51 on April 26 for a market cap of $1.65 billion and a price-to-earnings ratio of 18.97. The GF Value chart rates the stock as slightly undervalued.

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Canadian Solar manufactures photovoltaic solar modules and manages large-scale commercial and residential solar projects. The company was founded in 2001 and has a presence in over 150 countries, including the United States, Australia, China and Japan.

Canadian Solar’s modules have received several awards for their performance-to-cost ratio. The company offers a wide variety of specialty modules and has also branched out into downstream operations to combat the exploitation of multiple compression as solar energy becomes increasingly utility-focused.

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