Trina Solar Limited ADR (TSL) is a stock which seems to have a great potential for growth due to recent significant reduction of its production costs faster than its peers in recent quarters, Trina Solar now can turn raw silicon into a solar panel at a cost of $0.85 per watt, the lowest level of any silicon-based solar company. Further, its silicon costs have declined by two thirds in recent quarters, meaning it is no longer severely penalized by paying prices far above its more established competitors. As a result, Trina is now the lowest-cost producer of silicon-based solar panels, recently inching past larger rivals Yingli Green Energy YGE, Suntech STP, and SunPower SPWRA. (First Solar’s FSLR costs remain well below those of even Trina’s, thanks to its unique production method that employs cadmium telluride instead of silicon.) In an intensely competitive industry where cost matters most, Trina has positioned itself to benefit as the industry again begins to grow.
Fundamental check of this stock:
QUARTERLY EPS CHANGE (THIS QUARTER VS. SAME QUARTER LAST YEAR): [FAIL]
The EPS growth for this quarter relative to the same quarter a year earlier for TSL should be greater than the minimum 18%. Unfortunately, TSL’s earnings figures are not available, hence an opinion cannot be rendered on this variable at the present time.
ANNUAL EARNINGS GROWTH: [PASS]
I look for annual earnings growth above 18%, but prefer higher than 25%. TSL’s annual earnings growth rate of 316.58%, based on the average of the 3 and 4 year historical EPS growth rates using the current fiscal year EPS estimate, passes this test.
EARNINGS CONSISTENCY: [PASS]
Each year’s EPS numbers should be better than the previous year’s. One dip is allowed, but the following year’s earnings should be a new high. TSL, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.00, 0.01, 0.02, 0.02, 0.03, passes this criterion, as EPS have continually increased.
CURRENT PRICE LEVEL: [FAIL]
I typically look for the stocks trading within 15% of their 52-week highs. TSL’s current stock price ($24.96) is not within 15% of the 52-week high ($31.18), and, therefore, the stock is looked at unfavorably until the price moves into the acceptable range.
4 MONTH S&P RELATIVE STRENGTH LINE: [PASS]
I’d like to see confirmation from this indicator when buying as a sign of a company’s recently strong momentum. It shows a company’s weekly performance in comparison to the overall market, as measured by the S&P 500. Look for a general upward trend in weekly relative strength, as the best stocks usually act better than the overall market. TSL’s relative strength trend has been increasing over the last 4 months. This type of price action is favorable.
PRICE PERFORMANCE COMPARED TO ALL OTHER STOCKS: [PASS]
A company’s weighted relative strength, which is the stock’s price performance compared with the overall market over the past year, should be no less than 80, although above 90 is preferred. As long as all the other numbers are in check, these companies should continue to perform well over the next 3 months. TSL’s relative strength of 94 is at an exceptional level, and therefore passes this test.
CONFIRM AT LEAST ONE OTHER LEADING STOCK IN THE INDUSTRY: [PASS]
Make sure that a company’s industry is attractive by confirming that at least one other company in the industry has a relative strength above 80. There is confirmation in TSL’s industry (Semiconductors), as there are 71 companies that have a relative strength at or above 80.
LOOK FOR LEADING INDUSTRIES: [PASS]
Investors should consider stocks in top performing industries. Look at the number of companies within an industry that have a weighted relative strength above 80, and choose only the top 30% of those industries from which to select stocks. In another method, look for industries with the most stocks making new 52-week highs. TSL’s industry (Semiconductors) is currently one of the top performing industries, thus passing the criterion.
DECREASING LONG-TERM DEBT/EQUITY: [PASS]
Companies who have consistently cut debt over the last 3 years, or who have a Debt/Equity ratio less than 2, are looked at favorably. TSL, which has a Debt/Equity ratio of 0.47%, passes this test.
RETURN ON EQUITY: [PASS]
Preferred companies must have a ROE of at least 17%. TSL’s ROE of 17.6% is above the minimum 17% that this methodology likes to see, and therefore passes the criterion.
SHARES OUTSTANDING: [NEUTRAL]
Shares outstanding should be less than 30 million, as fewer shares mean bigger price jumps when demand surges. However, there is no penalty for a large number of shares outstanding as long as all the other parameters are met. Although TSL exceeds the preferred level with shares outstanding of 69 million, the stock still passes the test.
INSIDER OWNERSHIP: [FAIL]
Companies with the best prospects have strong insider ownership, which we define as 15% or more. When there is strong insider ownership, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 0.01% of TSL’s stock. Management’s representation is not large enough and fails this test.
INSTITUTIONAL OWNERSHIP: [PASS]
Some institutional ownership is preferred, but there is no indication that a large number of institutions is too many. Institutions own 54.32% of TSL’s stock. Because there is some institutional ownership present, TSL passes this test.
The stock is trending well in short term (1 year) with a sideways move during this year. However, it seems to me, and I may be totally wrong, that the stock is creating a buy opportunity right now. I decided to take this trade as a solar play and bet for improvement of this stock during growing solar market.
When calculating risk I had to take into consideration a bit larger initial risk (9.18% instead of 6%), but I decided to take this play and check whether my “set-up” analysis work as expected. I will be trailing the stop loss quite close to the current price and sell immediately if the stock turns against me.
Tonight I placed a buy order of 30 shares of TSL for tomorrow market open.
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