JinkoSolar (NYSE:JKS) reported its now-usual very strong quarterly results. The company’s growth prospects remain very impressive, as does the outlook for the overall solar-energy sector. But different factors have lit a very hot fire under JKS stock and appear to have finally vanquished the short sellers who had kept the shares from climbing much above $28 in the last five years.
The “smart money”– including the huge investment banks Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), Bank of America (NYSE:BAC), and Citi (NYSE:C) — have been accumulating JinkoSolar’s shares for a couple of years. The stock started to rally in November 2019, but the surge was cut short in January, likely by the beginning of the novel coronavirus pandemic. Now, enough investors are confident in the stock’s outlook to seize control from the short sellers, who for years had routinely accounted for around 50% of the stock’s daily trading volume.
Given the tremendous staying power of JinkoSolar’s positive catalysts and the company’s low valuation, I continue to believe that JKS stock will climb tremendously over the medium-term to long-term. As a result, I reiterate my recommendation, first made on InvestorPlace in 2017, that investors buy the shares.
Let’s take a look at the three key factors that likely finally boosted JKS stock above its longtime trading range.
JKS Stock Gets China Clean-Energy Boost
Last week, China, in a move that was little-noticed in the U.S., stated that it would “ensure that its emissions will peak by 2030 and that it would become carbon-neutral by 2060,” according to a Forbes columnist.
Since China is both JinkoSolar’s home market and has more, by gigawatt, solar energy installed than any other nation, the news had a huge impact on JKS stock, with the shares up 75% since Sept. 21. That compares with a 43% gain in the same period for the 41-stock SPDR Kensho Clean Power ETF (NYSEArca:CNRG), in which JKS stock is the fifth-largest holding (4.61%) in the exchange-traded fund’s portfolio.
Indeed, China’s commitment is very bullish for the stock. The country’s decision ensures that demand in JinkoSolar’s huge home market will be very high going forward. That strong domestic demand should be positive for the company’s margins, since its shipping and production costs in China are relatively low.
Seeking Listing on Nasdaq-like Shanghai Board
Then there was the company’s Sept. 21 announcement that it would look to list its main subsidiary on Shanghai’s Nasdaq-style Sci-Tech innovation board by 2023. To support the listing, three of the company’s founders, as well as a number of its senior managers, agreed to buy about $458 million of its shares. Under the deal, they would receive a 26.7% stake in JinkoSolar.
Importantly, the founders and managers’ investment was carried out at a valuation of $1.26 billion, which was nearly 17% above the market capitalization of JKS stock at the time. I think that show of confidence by the company’s founders and a number of its senior managers made the Street much more confident in the company and its shares.
Finally, many investors had been worried about the company’s net debt, which came in at $1.37 billion at the end of the second quarter. The new listing, in conjunction with the investment by the managers and founders, should erase much if not all of the JinkoSolar’s net debt. Moreover, since the new stock will be traded in China and likely bought primarily by Chinese investors, it should not dilute the shareholders of JKS stock, who are likely mostly Americans, too much.
Can’t Discount China’s Strong Economic Data
In recent weeks, China reported very strong economic data for August. In that month, for example, the country’s industrial production actually rose 5.6% year-over-year and its retail sales inched up 0.5% YOY.
I believe that most investors have concluded that the Chinese economy has fully emerged from the coronavirus crisis, making Chinese equities, including JKS stock, very attractive at this point.
A few other factors played less important roles in the gigantic rally of JKS stock. JinkoSolar’s stronger-than-expected second-quarter results and Q3 guidance certainly helped the shares, as did the company’s comments about competition in the sector declining on its Q2 earnings conference call.
How to Value JKS Stock
The shares have nearly doubled over the last month, yet they’re still trading at a forward price-earnings ratio of only 10 and a trailing price-sales ratio of just 0.3x.
Those are incredibly low valuations for one of the leading companies in a sector that’s growing extremely rapidly all over the world. Moreover, JinkoSolar’s results are likely to keep improving as solar energy gets cheaper, competition in the sector declines, China and many other nations and companies look to cut their carbon emissions, and the growth of demand for electric vehicles makes electricity more expensive.
Also important is that JinkoSolar had, as of July, the most efficient large area N-Type monocrystalline silicon solar cells. Trading at a relatively very low enterprise value of just $3.85 billion, JKS stock still has a very long way to run.
On the date of publication, Larry Ramer held a long position in Jinko Solar.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.