Editor’s Note: On July 14, the below article was corrected to note that JinkoSolar’s 2020 revenue was 35 billion Chinese yuan, or $5.4 billion.
Almost unbelievably, a leader of one of the world’s biggest trends — if not its biggest trend — has a market capitalization of just $2.95 billion. I’m referring to JinkoSolar Holding (NYSE:JKS) stock. Based in China, JinkoSolar manufactures solar-energy modules, cells and wafers.
To help understand how low JinkoSolar’s valuation is, consider that Fisker (NYSE:FSR), an (almost) zero-revenue electric-vehicle maker with, at best, mixed chances of success, has a market cap of $5 billion. Another EV maker with very little revenue, Canoo (NASDAQ:GOEV), which is reeling amid recent leadership and strategy changes, has a market cap of $2.14 billion.
Those companies have only (very tenuous) hope and dreams. Conversely, JinkoSolar’s top line came in at 35 billion Chinese yuan, or $5.4 billion, in 2020, and the solar-energy company has state-of-the-art technology, exciting new products, and extremely strong positive macro catalysts in its corner.
Additionally, the worries that appear to be keeping the company’s valuation so low are baseless, while JKS stock looks very well-positioned to benefit from a huge short squeeze and JinkoSolar was the world’s second-largest shipper of solar modules last year.
JKS Stock Bears Miss Top-Notch Technology
Among those who are bearish on the best solar module makers in general and JKS stock in particular, one of the biggest misconceptions is that such modules are “a commodity,” i.e., that they are easy to make and that there is little to differentiate them from each other.
But in fact, the efficiency of solar modules — the percentage of the sun’s energy that they convert into electricity — varies widely. Of course, solar modules that generate more electricity, all else being equal, are essentially cheaper and more valuable for the owners of solar products.
On July 12, JinkoSolar announced that ” the maximum solar conversion efficiency of its advanced high-efficiency solar module reached 23.53% and has outperformed the previous record of 23.01%, also set by JinkoSolar, in January 2021.”
According to the company, “The result was independently tested and confirmed by TÜV Rheinland, one of the world’s leading testing service provider on internationally recognized safety and quality standards.”
JinkoSolar says that its “large-area N-type monocrystalline silicon solar cells” recently achieved an industrywide efficiency level of 25.25% in a test. And by the end of the year, the panel maker expects to complete the development of “a high-efficiency laminated perovskite cell technology platform” that will have an efficiency of “over 30%,” although it indicated that it expects to only start marketing those cells in “the longer term.”
Meanwhile, late last year, JinkoSolar unveiled an “energy storage system.” And as of October 2020, it was collaborating with a company called Enact on the development of “a residential monitoring and software program,” according to website Electric & Young. There is likely to be strong demand for these systems, and they will probably carry much higher profit margins that JinkoSolar’s solar modules, cells, and wafers.
There have been worries about the rising prices of solar module makers’ raw materials, especially polysilicon. But JinkoSolar has said that it is taking various steps to deal with this situation, including raising the prices of its modules, and it expects polysilicon prices to stabilize in the third and fourth quarters of this year.
While the company did lower its production of modules at the end of Q1 due to reduced demand stemming from higher module prices and it cut its ” wafer, cell and module” production plans for 2021 by roughly 10%-20%, the company’s sales obviously continue to grow rapidly, and its raw-material situation should improve in the second half of the year. Meanwhile, the company’s technology improvements leave it well-positioned to take market share over the longer term.
Ironically, additional news that’s created fear around JKS stock should actually help with the polysilicon shortage. Specifically, the Biden administration has barred a number of Chinese solar energy companies from shipping their products to the U.S. over concerns about their use of slave labor.
My research, however, indicates that the two main identified companies whose exports have been banned so far primarily engage in the production of silicon and polysilicon used in solar modules, wafers and cells. By preventing silicon and polysilicon from being exported to the U.S., the Biden administration is effectively increasing the supply of those materials that will be sold in China,. As a result, the prices of these raw material will likely drop there, helping JinkoSolar.
Finally, some on the Street are likely worried that a crackdown by Beijing on some Chinese tech companies will be extended to JinkoSolar. But the crackdown appears to be generally limited to companies that utilize Variable Interest Entities (VIE) to list their shares in the U.S. Since JinkoSolar doesn’t utilize a VIE and Beijing obviously values its solar sector very much, I’m not worried about JinkoSolar being hurt by China’s government.
Huge Macro Movers
As I’ve noted in multiple past columns, the demand for solar energy is set to explode higher, as the U.S., China, EU, India, Japan, and many other nations are mandating that solar make up far greater percentages of their electricity generation in the coming years and decade. And, of course, with its industry leadership position and the superior efficiency of its modules, JinkoSolar and JKS stock are extremely well-positioned to benefit from this trend.
Another point that I’ve thought of recently is that these government mandates should eventually meaningfully raise, or at least stabilize, the prices that companies can get for their modules. After all, mandates increase demand and higher demand tends to raise prices.
Take the auto-insurance market as an example. If states did not require every driver to buy auto insurance, demand for the insurance would, obviously, be much lower, as some irresponsible people would drive without insurance. That reduced demand, in turn, would probably lower the cost of insurance. So it’s clear that this government mandate increases the price of auto insurance.
The Bottom Line on JKS Stock
JinkoSolar clearly has a very bright future ahead of it (pun intended), yet the valuation of JKS stock is very low.
Meanwhile, as of June 15, nearly 20% of the company’s publicly available shares were being sold short, and the shares soared almost 50% in the last three weeks. It appears that the stock is in the midst of a true short squeeze, making this a very good time to buy them.
I recommend that all investors purchase JKS stock now.
On the date of publication, Larry Ramer held a long position in JKS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 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, Ford, Exxon, and Snap. You can reach him on StockTwits at @larryramer.