Company of the Year: Emeren

A solar power plant in Serpa, Portugal. Wiki Commons. Used with permission.

Company of the Year: Emeren
 
I’m a little reticent to name a Company of the Year when a recession is forecasted for the 2nd half of 2023. When the general market weakens, even companies with great prospects can see their share prices sink, particularly microcaps. That makes the window of opportunity tight, or nonexistent – something to keep in mind when developing your exit strategy.
 
Company of the Year: Emeren
Emeren (previously Renesola) is a global solar company specializing in global solar projects in North America, Europe and Asia. Emeren has solar projects in Minnesota, North Carolina, Pennsylvania, California, Ontario, the United Kingdom, Poland, Italy and China.
 
In the 1st quarter of 2023, Emeren’s revenue hit $12.9 million, a pop of 266% over the $3.5 million the company brought in during the 1st quarter of 2022. The 2nd quarter is expected to have $38-$40 million in revenue, up three times sequentially and 4.75 times higher than the 2nd quarter of 2022, which came in below their guidance, at $8.2 million. The 2023 full year revenue is projected to be $154-$174 million revenue with net income of $22-$26 million – more than double 2022 revenue and a fourfold increase in the net profit.
 
Here are a few of the considerations for this exciting investment, which also has elevated risk, due to it being a microcap, and due to the macro conditions.
 
The Solar Industry is Hot
Flying Under the Radar of Reddit
Strong Board of Directors
Whale of an Investor
Liquidity Concerns?
Is Emeren a Good Price?
 
And here is more color on each point.
 
The Solar Industry is Hot
The solar industry is benefitting from increasing demand, higher Power Purchase Agreements and favorable government policies. More than half of the new power generation in 2023 in the U.S. will be solar, at 29.1 GW.

According to the Energy Information Administration (EIA.gov), the U.S. electric grid operated with 74 gigawatts (GW) of solar photovoltaic capacity at the end of 2022. That is expected to increase by another 63 GW (+84%) by the end of 2024. While the growth is strong and steady in solar, sun power generation will only be 6% of the U.S. grid by 2024 (up from 3% in 2022). If the commitment to power with renewables remains strong going forward, there is a lot of runway left for the industry.

Flying Under the Radar of Reddit
Emeren benefits from having an easy ticker on the New York Stock Exchange (symbol: SOL). Sadly, however, that is the same as Solana’s crypto call letters (SOL). (Read my FTX blog for more information on why Solana is trading at an all-time low.) Emeren is only covered by a handful of analysts, who all recommend purchasing Emeren. Two recommendations are a strong buy and two are a buy.
 
Things can heat up quickly, particularly if a company hits the technical charts with a bullet. Emeren (formerly Renesola) has been a Meme Stock Darling in the past, hitting a high of almost $36 on Jan. 22, 2021. At its current price of $3.75, if it manages to shoot that high again, that would be a gain of over 9-fold.

Source: MSN.com. (c) Microsoft. Used with permission.

It’s more difficult to Shoot the Moon in a slow-growth or recessionary year (although that didn’t stop Stimmy Check funded flights in 2020). We certainly have seen rapid-fire runups this year in companies like Nvidia and Tesla – on news that was positive, but not nearly as noteworthy as the revenue growth of Emeren. The NASDAQ Composite Index is up 32% so far in 2023. However, as you can see in the chart above, outsized run-ups tend to reverse themselves quite rapidly, particularly with small and micro cap stocks. So, it’s a good idea to have Emeren (SOL) on a stock app on our smart phone, with price alerts, and every other bell and whistle we can think of to help us to sell high if it soars to lofty levels.
 
Strong Board of Directors
CEO and board director Yumin Liu came from Canadian Solar. Martin Bloom, who has been a board director since 2006, has 40 years of experience leading strategic partnerships between Europe, the U.S. and China. In 2005, Mr. Bloom was appointed to serve as the UK chairman of the China-UK Venture Capital Joint Working Group, launched by the then-Chancellor of the United Kingdom, Gordon Brown.

Whale of an Investor
Emeren’s chairman of the board, Himanshu H. Shah, owns over 27% of the company. His bio names him a “long-term investor.” However, whenever a whale slaps his tail in the water, waves ripple throughout the ocean. And if he decides to breach, smaller fish will drown. Mr. Shau joined the board in March of 2022 (with 22% ownership) and became Chairman of the Board on Nov. 22, 2022.
 
Liquidity Concerns?
We’ve seen small companies get destroyed due to liquidity concerns over the past two years. Tight credit conditions and higher interest rates elevate the risk for any company that might need to borrow money – particularly a microcap company. Emeren had $66.7 million cash on hand at the end of the 1st quarter of 2023. They burned through $40.4 million in the 1st quarter, which would seem as though they are flying too close to the trees. However, as outlined above in their 1st quarter 2023 Shareholder Letter, the company is expecting robust revenue growth and a net income of $22-$26 million. These forecasts are reliant upon “the expected closures of over 300 MW of project sales in Europe and U.S.” As long as things run on track, investors should be pleased with the results.
 
Emeren is so confident in their cash position that the company has a share repurchase plan in place. They repurchased $13.2 million of their shares in the 1st quarter and have $17 million left available for more purchases. They plan to continue the buybacks, according to the 1Q 2023 Shareholder Letter.

Is Emeren a Good Price?
Currently Emeren’s Price/Earnings ratio is 35.53, due to having only a small amount of net profit in 2022, at $5.9 million. However, if the company hits their 2023 net profit target of $22-$26 million, then their forward P/E becomes quite a bargain, at under 10.
 
There is a similar issue with the Price/Sales. 2022 was a disappointing year for a lot of solar companies, including Emeren, which saw its annual revenue slump to $61.3 million in 2022, from almost $80 million in 2021. According to EIA.gov, the U.S. solar capacity declined by 23% in 2022 from 2021, due to pandemic-related challenges, including supply chain disruptions. With delayed 2022 projects coming online in 2023, the EIA is projecting to install 29.1 GW of solar power in the U.S., the highest ever, beating 13.4 GW in 2021. Emeren’s forecast of $154-$174 million in 2023 revenue brings the Price/Sales ratio down to an appetizing 1.28 (in the mid-range of the projection).
 
Emeren was trading near an all-time low, at $3.75 at the market close on Friday, June 16, 2023. If you'd like a copy of our Solar Stock Report Card, email [email protected]. 
 
Bottom Line
There is a robust solar industry tailwind that is underpinning the expected impressive revenue growth of Emeren. At the same time, the macro considerations (a potential recession in the 2nd half of 2023) are meaningful. There are no guarantees which way the wind will blow.
 
The predictions are bright for solar and Emeren. If we buy into this Company of the Year pick, we’re purchasing near an all-time low, with high expectations of what might happen if SOL becomes a Meme Stock Darling again. At the same time, it’s a good idea to factor in the amount of babysitting required for small caps these days, and determine if you’re really interested in keeping tabs on whether or not Emeren hits its targets, and how quickly we must capture gains before the recession kicks in and potentially drags all share prices down.

Full disclosure: I plan to purchase shares of Emeren on Tuesday, June 20, 2023, four days after this blog was published. (The markets are closed on Monday, June 19, 2023.)
 
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