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    Value Investing DCF of Canadian Solar ($CSIQ) using unlevered free cash flow -- a potential 53% profit?

    September 04, 2020

    Value Investing DCF of Canadian Solar ($CSIQ) using unlevered free cash flow -- a potential 53% profit?

    DCF of Canadian Solar ($CSIQ) using unlevered free cash flow -- a potential 53% profit?

    Posted: 03 Sep 2020 10:37 AM PDT

    Edit: some recalculation for the fair value made my upside slightly incorrect. It should be ~46% upside.

    Background

    Canadian Solar (CSIQ) is a manufacturer of solar photovoltaic modules and provides solar energy solutions. It operates through the Module and System Solutions (MSS) and Energy segments. The MSS segment involves in the design, development, manufacture, and sales of solar power products and solar system kits, and operation and maintenance services. The Energy segment comprises primarily of the development and sale of solar projects, operating solar power projects and the sale of electricity. The company is headquartered in Guelph, Canada.

    Why the Interest?

    This company hit my radar as I was playing around with a stock screener (around 2 months ago). For what is arguably a semiconductor and energy company, it was ridiculously cheap. Here are the current ratios:

    • P/E: 8.65

    • Forward P/E: 7.88

    • EV/S: 0.87

    • EV/EBITDA: 6.54

    • EV/EBIT: 7.50

    • PEG: 0.35

    • P/S: 0.53

    • P/B: 1.21

    Without even necessarily reseaching, it is obvious that this is much cheaper than its sector, and even industry. What's the catch though?

    Debt and Profits

    This company has a lot of debt relative to its equity. Some ratios:

    • Debt/Equity: 2.90

    • Net debt/EBITDA: 2.43

    • Current ratio: 1.15

    • Quick ratio: 0.95

    With a market cap of $1.69B, it holds a total of $3.061B in debt. It's margins aren't the healthiest when compared to its competitors too:

    • Profit margin: 5.36%

    • Oper. margin: 11.62%

    • Gross margin: 22.45%

    • EBIT margin: 11.62%

    • EBITDA margin: 13.34%

    However, it does have nice prospects of growing as seen by its growing revenue, and recently beating expectations in earnings and revenue. Some more ratios:

    • Ret. on assets: 4.82%

    • Ret. on equity: 18.12%

    • ROIC: 4.35%

    • ROCE: 15.07%

    DCF Valuation

    My 5 year projection DCF valuation is available to view and download here.

    Highlights:

    • Average revenue growth of 17.5% for the next 5 years (many projects in the pipeline, high at first, lower later)

    • 20% future tax rate (low because of future tax policy favouring green energy)

    • CapEx starting high at 15% for the first two years and then 10% for the next 3

    • Cost of Debt (after taxes) is 2.7%, Cost of Equity 15.2%, WACC 8.1%

    • Perpetual Growth Rate of 2.5% (average for most fimrs)

    • Final EV: $5 234.1MM

    • Fair Value Equity: $2 662.4MM

    • Fair Value Equity/Share: $44.84

    Current upside (with share value @ 30.75) of 46%

    Any criticism and ideas are very much appreciated. This is my first real DCF, and I hope I got things correct.

    One thing I wanted to do was a 5 factor model for the Cost of Equity, but I had a hard time finding the specific risk betas for the company. Anyway, I hope 15% is enough of the cost of equity anyway.

    What are your thoughts on CSIQ, and solar in general?

    submitted by /u/MrMineHeads
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    Small cap investing

    Posted: 04 Sep 2020 03:04 AM PDT

    Small cap investing

    I was wondering if any of you have stock tickers of listed small cap companies that are worth investing in. I am in belief small caps are laggers and have a lot of room to gain.

    submitted by /u/sheltonkris
    [link] [comments]

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    Declining period lengths

    Posted: 03 Sep 2020 09:15 AM PDT

    In the dot-com bubble, the Nasdaq peaked on March 10th at 5,048 and fell to 1,114 in October 2002. The largest one-day decline was around -9.5% in April 2000.

    The drop in April was sharp, but it didn't mean the issues were over, because the markets still had about 2 years to finish their movement lower.

    The drop in the 2008/2009 timeline was different. The S&P500 peaked in October 2007 and reached a trough in March 2009. The peak to trough was about 1.5 years, less than the dot-com bubble at 2.5 years. The other difference is that the time from the largest daily drop to the trough was less from October 2008 to March 2009.

    I have three items for the group's views:

    1. Why do the markets take so long to finish their "correction?" (Excuse me if my terminology is not correct) The decline in the dot-com era was very slow taking over 2 years to reach a bottom. Is this just momentum at play, where investor selling invites more selling as prices drop?

    2. The issues in 08/09 were different with sharper changes and a shorter time peak/trough and the time between the market's largest decline and trough. Was this possibly due to reduced liquidity, and the perceived (even reality) impacts of a shaky financial sector that underpins the economy?

    3. Finally... the markets have been strange for a while, growing in the face of the corona virus, rise of apps like Robin Hood, and generally just lofty valuations for some tech names. The Nasdaq is down a bit today, 4%, and I hate to focus on any day's events. I believe the take away from questions #1 and #2 is that if this, or another day, turns out to be a change in the tide, it could take a while to "finish." Would anyone else have views on this?

    submitted by /u/financiallyanal
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