Remember the story of the boy who cried wolf?
A shepherd boy – tasked with taking care of the sheep in his village – cried “wolf” so many times simply to get attention, that when a wolf finally did show up and the boy cried “wolf,” none of the villagers showed up.
To many market observers, the solar industry feels a lot like the boy who cried wolf.
Bulls have been pounding on the table about a solar energy breakout for years… and yet solar stocks went absolutely nowhere from 2010 to 2019.
But, in 2020, the wolf has shown up for the solar industry – and unlike the villagers in the story, investors are showing up, too.
Year-to-date, the Invesco Solar Portfolio ETF (NYSEARCA:TAN) has rocketed 85% higher, breaking out to levels not seen since mid-2011, amid a surge in global solar energy demand before and even during the Covid-19 pandemic.
This is not a head fake.
The stars have finally aligned for the solar energy megatrend to come to life, and over the next decade, solar power will become globally ubiquitous, powering everything from your home to your office, thanks to:
- Government support (almost every country in the world has a “100% clean energy” target for 2030, 2040, or 2050)
- Falling costs (solar energy costs have dropped 70% over the past 10 years to reach near grid parity)
- Improving technology (26% of solar systems will be paired with energy storage capability by 2025, versus just 4% in 2019)
- Rising consumer demand (46% of U.S. homeowners are seriously thinking about adding solar panels to their homes, up from 40% in 2016)
Needless to say, this is a space you want to be invested in right now.
But you don’t want to buy one of the large-cap stocks that will move higher with a rising tide. Rather, by buying one of the smaller names in the solar energy space that could explode higher by 2030.
Executing a Promising Turnaround to Drive 1,000% Gains
For years, Jinko Solar (NYSE:JKS) has been written off as just another low-end, commoditized Chinese solar module manufacturer… in a crowded and struggling solar energy market… with a marginally profitable business model and cyclical, volatile demand.
Indeed, that’s what Jinko Solar was for the most of the 2010s.
And it’s why this company – which did $4.3 billion in sales last year – has a market cap of just $1.2 billion.
But everything is changing for Jinko Solar today.
First, Jinko Solar has pivoted from making cheap, low-efficiency multicrystalline solar modules (56% of shipments in 2018), to making premium, high-end monocrystalline solar modules (99% of projected shipments in 2020).
More than that, Jinko has become a best-in-breed supplier of these premium solar modules, recently reporting a record-high 24.8% energy conversion efficiency for one of its monocrystalline silicon solar cells (typical efficiencies for these cells average around 20%).
In so doing, Jinko has emerged as a differentiated leader in the premium solar cell world, with an efficiency moat and sufficient technological competitive advantages to ensure stable and strong long-term demand.
Second, Jinko Solar has leaned into its cheap China-centric and technologically advanced manufacturing process to sell these top-notch solar panels at market-low prices.
Jinko’s signature line of Tiger Pro Monofacial solar panels carry a levelized cost of energy (LCOE) of 2.8 cents per kilowatt hour, versus 3 cents standard for monocrystalline solar cells and 12 cents average for all U.S. electricity – so, indeed, Jinko is on the cutting edge of leading the solar energy space to grid parity.
Third, Jinko’s monocrystalline pivot has dramatically improved the company’s profitability profile.
No longer is this a sub-15% gross margin company with skimpy operating margins. Now, gross margins are near 20% and operating margins are above 5%.
Importantly, there’s tons of room for further expansion towards 25-30% gross margins and 10%-plus operating margins, which are standard for high-quality solar cell producers.
Fourth, the solar energy market is booming.
Because the market is now being driven by economics and not subsidies – i.e. solar cells are now cheap enough to be an economic alternative to traditional energy, and supply is abundant – consumer adoption of solar is picking up.
In the first quarter of 2020, the U.S. solar market installed 3.6 GW of solar PV, the largest Q2 on record by about 40%. For all of 2020, solar PV installations are expected to surge by 33%.
In sum, then, Jinko has – over the past few quarters – turned into a leading and differentiated premium solar cell manufacturer, with strong margins and steady demand, in a booming solar cell market.
That’s a recipe for success.
Especially with Jinko stock trading at just 0.2X sales.
Could Jinko’s revenues rise to $10 billion within the next decade? Considering the International Renewable Energy Association forecasts global solar PV installed capacity to grow by 200% from ~93 GW per year in the late 2010s, to 300 GW per year by 2030, then absolutely – Jinko’s revenues could rise ~100% by 2030.
Could Jinko stock start to trade at a more reasonable 1X sales multiple? Also, yes, because the company is transforming into a financially more stable business with better margins and cash flows.
The math there implies that this is a $10+ BILLION company in the making.
Which, of course, means that Jinko stock has 10X upside potential in the long run – making it a stock that you should consider to play the solar energy breakout of the 2020s.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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