The price of shares for GT Solar, ticker SOLR (a ~4% position), are up over 7% today after analysts have highlighted the low valuation of the stock and potential high accretion if the company is bought. Obviously I agree since valuation was one of the primary reasons for buying the shares. SOLR is trading around 7x the consensus C11 EPS estimate, which I believe is a relatively low valuation for a company expected to grow earnings in the mid-teens next year and at an annual rate of 50% for the next 5 years (probably overly aggressive, but this gives lots of room to lower to a more reasonable rate of around 20-30%). TTM ROI is in excess of 50%, and the company has net cash of almost $2 on the balance sheet.
While investments by competitors likely increase competitive pressure next year, assuming demand continues to grow at an accelerated rate in 2012 and beyond, the stock should have a higher multiple.
I plan to hold on to the full position for now, or until the multiple expands closer to the expected 2011 earnings growth rate of the mid-teens, implying a price target in in the upper teens.
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