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Sunny CSIQ

Analysis of stock CSIQ
CSIQ: quality, value and growth.

Canadian Solar, Inc. engages in the manufacture of solar photovoltaic modules and a provider of 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 was founded by Shawn Qu in October 2001 and is headquartered in Guelph, Canada.

Founded: 2001

Number of Employees: 12,442

Headquarters: Guelph CA

Analysis Structure

This analysis will look at three factors for CSIQ and it's peers:
  • Quality of Earnings,
  • Valuation, and 
  • Growth.
We'll look at both relative and absolute numbers.

We're running this model against a portfolio of eight stocks including CSIQ.  The other companies selected were chosen because they were in a related industry (Electrical Products) and/or sector (Producer Manufacturing) and have a market cap close to CSIQ's of ($1.1121B).

Peer Group:

Stock Name (Symbol)Last PriceMarket Cap
Xinjiang Goldwind Science & Technology Co Ltd - ADR(XNJJY:OOTC)$11.50889.608M
Vivint Solar Inc(VSLR:XNYS)$7.08861.063M
SunPower Corporation(SPWR:XNAS)$9.971.4210B
Sunrun Inc.(RUN:XNAS)$17.512.0593B
Canadian Solar Inc.(CSIQ:XNAS)$18.711.1121B
Ballard Power Systems Inc.(BLDP:XNAS)$5.101.1865B
AZZ Inc.(AZZ:XNYS)$38.901.0173B
Atkore International Group Inc.(ATKR:XNYS)$31.251.4550B

Why Are We Running The Model Against a Portfolio?

A single value or score for our target company  is somewhat informative, but when we get numbers in context by analyzing a company against a peer group, it gets much more illuminating.

INVRS is designed for peer-based analysis.  We believe (and we're not alone) that analyzing a stock without a basis of comparison is like trying to understand the world with blinders on - your vision is through a tunnel.  The ideal is to get as broad a perspective as possible - a panorama across data points, across time and across peers.  We call this three-dimensional analysis.

Quality of Earnings

This model is based on Lev & Thiagarajan's Fundamental Information Analysis.  It involves 28 data points spanning over three years and 38 separate calculations.  The maximum number of measures is nine (some companies don't have some metrics because of the nature of their business - inventory or R&D for example.  The measures are as follows:
  • Inventories
  • Receivables
  • Research and development
  • Capital expenditures
  • Gross margin
  • Selling, general and administrative expenses
  • Employees
  • Tax, and
  • Unqualified audit report
With the exception of the last measure (which is either yes or no), each involves several calculations which ultimately indicate whether the financial results are trustworthy or whether there is possibly some manipulation happening to improve them.

Here's an example of how it works.  We'll look at the measure for receivables.  What we want to see for quality is that the expected percentage change in sales is greater than the expected percentage change in receivables (the same principal applies to inventory, SG&A and employees).  We approximate "expected" values by the average of Y-1 and Y-2, where Y represents the most current annual financial information available.  The percentage change compares the actual (Y sales and Y receivables) to the expected.

When the expected percentage change in sales is greater than the expected percentage change in receivables, we get a quality signal and the algorithm gives that measure a score of "1".  If we don't get a quality signal, we give that measure a score of "0".

All the scores are summed and that gives us an overall quality score.  If all measures are in play, the maximum score is nine.

If you want further details about the model, click here.

The Result

Let's see the results.

 6-7 Good.  CSIQ has a good quality of earnings score.

Ohlson Clean Surplus Valuation

This model uses eight data points plus one estimate and makes 13 calculations.

You can find a detailed explanation of the model here but the short story is that this model calculates the present value of a company's future abnormal earnings, sums them, and adds them to  the current book value to come up with a theoretical price for the stock.  If the theoretical price is less than the actual price, you've got a potentially undervalued stock.

This first graph shows each stock's actual and theoretical price as calculated by the OCS.  Let's look at these numbers in another way: as the difference between theoretical price and actual price as a percentage of actual price.

CSIQ is trading a large discount relative to theoretical price.  Another way to think of this is in terms of margin of error - CSIQ has a good margin of error.

Growth Factors

This next model looks at four factors of growth:
  • 1 year revenue growth rate,
  • 1 year EBITDA growth rate,
  • 1 year free cash flow growth rate,
  • 1 year gross margin growth rate.
In order to determine which company has the best rate of growth, we calculate each of the four measures and then rank from best to worst.  The ranking for each measure is then summed and the stock with the highest score has the best rate of growth for the group.

Here's a graph of the results:

And here's a graph of the ranking:


Why is this an article about CSIQ rather than RUN?  RUN has the best quality of earnings score and the best overall growth but there is no margin of safety.  Given it's trading at a premium relative to its theoretical value, we conclude it is overpriced.

CSIQ came in second place relative to RUN on quality of earnings while still getting a good score.  It also came in second place in growth, however, if you click into the top right corner of the Growth Values chart you can see the actual scores for each of the factors.  You'll notice that CSIQ grew in every category, unlike RUN which had negative year over year growth in free cash flow (albeit very slight).  And importantly, CSIQ has that great margin of safety with a price only 62% of its theoretic value.


Whether or not this stock is appropriate for your portfolio, risk profile and long-term goals is not part of this evaluation.  The consequences of your investment decisions are yours and yours alone.  INVRS, its parent company, directors, officers and employees cannot be held responsible for any investment decisions you make.


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