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- 2006-5-20
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Is Too Much Sun a Bad Thing?
Monday May 22, 10:03 am ET
By Stephen D. Simpson, CFA
From the dawn of civilization, it seems like people have been worshipping the sun. When it comes to China's Suntech Power (NYSE: STP - News), the question is whether today's investors will look back on their investment with a sunny disposition or whether they'll succumb to sunstroke.
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Certainly, there's an easy hook to this story. This company has the advantage of low-cost labor in China (to say nothing of access to the Chinese market) and is actually profitable. And though I don't pretend to have a black belt in forensic accounting, the profit seems legit -- it's not based on licenses, royalties, R&D development agreements, or other energy-tech hoodoo. No, actual sales of actual products are producing what look like actual profits.
And growth certainly didn't go into eclipse this quarter. Reported sales climbed almost 134% on a year-over-year basis, and although margins did decline, net income still more than doubled. Better still, the company improved its polysilicon conversion efficiency and secured UL certification, giving them access to the U.S. market.
It all sounds so good, and that's part of the problem. Solar energy is an idea that has cropped up a few times before, produced a few interesting companies, and then collapsed again as the basic economics of the approach proved insufficiently compelling. And that's still true to some extent. Like ethanol, solar power is an option that's generally only viable today in the context of subsidies and other government inducements.
But that's not really my main concern. What has me worried a bit more is that one of Suntech's major advantages -- low-cost labor -- may not matter so much in the future. I don't pretend to know what the state of solar technology will be in 10 or 20 years' time, but I do know that a lot of smart folks are investing heavily in various thin-film and nanotech approaches. And let's also not forget who some of these folks are -- BP (NYSE: BP - News), Kyocera (NYSE: KYO - News), and Sharp (Nasdaq: SHCAY - News). Deep-pocketed competitors like that kind of make the whole "Suntech vs. Evergreen Solar (Nasdaq: ESLR - News)" debate seem a bit trifling.
Suntech is expensive. And don't give me that nonsense about how analysts are expecting 86% growth for the next five years. I used to be an analyst, and I can tell you there's no better example of mindless gibberish than those projections. Even still, I'm all in favor of occasionally taking a flyer on a risky story like Suntech. I've owned many a furball (my nickname for these risky high-reward stories) in my day, and it makes investing fun. Just don't fall into the trap of getting so in love with the emperor that you fail to notice when he suddenly starts walking around buck-naked. |
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发表于 2006-5-22 23:35