Companies: SOLA   

The share price performance of Chinese solar wafer manufacturer ReneSola has been a wonderful example of what TheWrongPrice.com is all about. We aim to identify shares that the market has either overlooked or oversold, before working out the most opportune time to back them.

We first recommended ReneSola when it was simply an overseas-based cleantech play – in October 2006, when the shares were 200p each. But only four months later, after the shares had increased 190 per cent, we thought that the earnings expectations did not match up to the share price performance and decided to sell ReneSola at 580.5p.

The market agreed and, despite a further surge in the price in the spring of last year, sentiment finally turned against the shares. By September, they had undergone a huge fall back to 265p – the price at which we decided to get back on board.

We backed ReneSola a second time because it was clear to us that its shares had been oversold. The earnings per share estimates of 15.4p and 40.6p for 2007 and 2008 respectively more than justified the (then) prospective price-to-earnings (p/e) rating of 17.2 times (although, admittedly, the latter forecast has since been reduced).
Since we rejoined the ReneSola juggernaut, the shares have traded for as much as 500p, but they have recently fallen back again to trade at just over 400p.

In fact, results for 2007 showed that earnings for the year were well ahead of last autumn’s expectations – with earnings per share (EPS) coming in at approximately 21.4p.

Recently, the company’s chief executive officer Xianshou Li stated that demand for its solar wafers continues to grow, while measures to increase wafer production capacity remain on track. Consequently, ReneSola decided to upwardly revise its production output and revenue guidance.

Soon afterwards, house broker Hanson Westhouse upgraded its pre-tax profit estimate for 2008 from $69.8 million (£35.4 million) to $78.3 million, which translates to EPS of 29.3p – an increase of 36.9 per cent over 2007. For 2009, the broker estimates a further 54.3 per cent increase in EPS to 45.2p, which means ReneSola’s shares are currently rated at less than ten times prospective earnings.

Such a p/e rating is clearly too low for a growth company in a growing industry that is operating in a growing economy. So, although the shares are currently trading for almost 57 per cent more than their price in September, when we decided to get back on board, we think they have much further to go. Buy.

ReneSola	AIM	£76.75m	76.75p	-15.25p
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Other company articles:
ReneSola			21/05/2008
ReneSola			02/05/2008
AIM news			28/04/2008
Hanson Westhouse			17/12/2007
Feedstock cheer for ReneSola			22/10/2007