When Canadian Solar Inc (NASDAQ:CSIQ) released its most recent earnings update (30 June 2018), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Being able to interpret how well Canadian Solar has done so far requires weighing its performance against a benchmark, rather than looking at a standalone number at a point in time. In this article, I’ve summarized the key takeaways on how I see CSIQ has performed.
Could CSIQ beat the long-term trend and outperform its industry?CSIQ’s trailing twelve-month earnings (from 30 June 2018) of US$133.6m has more than doubled from US$65.2m in the prior year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 32.7%, indicating the rate at which CSIQ is growing has accelerated. What’s enabled this growth? Let’s take a look at if it is only a result of an industry uplift, or if Canadian Solar has seen some company-specific growth.
Over the last few years, Canadian Solar increased its bottom line faster than revenue by efficiently controlling its costs. This resulted in a margin expansion and profitability over time. Eyeballing growth from a sector-level, the US semiconductor industry has been growing its average earnings by double-digit 19.6% in the previous twelve months, and 19.5% over the past five. This growth is a median of profitable companies of 25 Semiconductor companies in US including Hanwha Q CELLS, Integrated Device Technology and Ambarella. This shows that whatever tailwind the industry is gaining from, Canadian Solar is able to amplify this to its advantage.In terms of returns from investment, Canadian Solar has fallen short of achieving a 20% return on equity (ROE), recording 12.3% instead. Furthermore, its return on assets (ROA) of 4.7% is below the US Semiconductor industry of 8.3%, indicating Canadian Solar’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Canadian Solar’s debt level, has declined over the past 3 years from 24.7% to 11.0%.
What does this mean?
Canadian Solar’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I recommend you continue to research Canadian Solar to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CSIQ’s future growth? Take a look at our free research report of analyst consensus for CSIQ’s outlook.
- Financial Health: Are CSIQ’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.