Wednesday, October 08, 2008

Solar bargain

I just have to point out that MEMC Electronics(WFR) is trading at an absurdly low price. At ~$23/share it trades at a P/E of ~8. It also has $6/sh in cash and virtually zero debt. So the real P/E is closer to 6.

The knocks are well know...the economy is in the dumps which means earnings probably won't reach the $4.87/share that is estimated for next year. WFR makes high grade silicon for semiconductor chips and solar cells.

The company has benefited from a massive run-up in silicon prices as silicon was in short supply for 3-4 years. Silicon nearly tripled in price in that time frame, due to the hugh growth in solar panels in Germany and Spain. More supply is coming on line next year which should bring supply/demand back into balance. Most silicon is sold on a multi-year contract basis, so earnings may not grow as fast as recent years, but they are not going to fall off a cliff. But the stock is trading as if the solar industry is in terminal decline, as opposed to growing 40%ish per year.


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