Is Canadian Solar Inc. a Buy Following the 18% Earnings-Induced Sell-Off?

Canadian Solar Inc. (NASDAQ:CSIQ) released second-quarter earnings on August 18, and its stock reacted by falling over 18%. Should you buy or avoid the stock today?

| More on:
The Motley Fool

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Canadian Solar Inc. (NASDAQ:CSIQ), one of the world’s largest solar power companies, announced better-than-expected second-quarter earnings results after the market closed on August 18, but its stock responded by falling over 18% in the trading session that followed. The stock now sits more than 50% below its 52-week high of $41.12 reached back in September 2014, so let’s take a closer look at the results to determine if a sell-off of this magnitude was warranted, or if it represents a long-term buying opportunity.

The results that ignited the sell-off

Here’s a summary of Canadian Solar’s second-quarter earnings results compared with what analysts had anticipated and its results in the same period a year ago. All figures are in U.S. dollars.

Metric Reported Expected Year-Ago
Earnings Per Diluted Share $0.31 $0.13 $0.95
Revenue $636.65 million $592.50 million $623.77 million

Source: Financial Times

Canadian Solar’s earnings per diluted share decreased 67.4% and its revenue increased 2.1% compared with the second quarter of fiscal 2014. The company’s steep decline in earnings per share can be attributed to its net income decreasing 68% to $17.86 million, led lower by its total costs of sales increasing 6.8% to $540.11 million.

Its slight revenue growth can be attributed to its total solar module shipments recognized in revenue totaling 809 megawatts (MW) in the second quarter, an increase of 25.2% from the 646 MW recognized in revenue in the year-ago period.

Here’s a quick breakdown of eight other notable statistics from the report compared with the year-ago period:

  1. Total solar module shipments increased 31.6% to 850 MW
  2. Revenue in the Americas decreased 12.5% to $302.8 million
  3. Revenue in Asia and other regions increased 59% to $296.1 million
  4. Revenue in Europe decreased 58.7% to $37.8 million
  5. Gross profit decreased 18.3% to $96.54 million
  6. Gross margin contracted 380 basis points to 15.2%
  7. Income from operations decreased 52% to $32.49 million
  8. Operating margin contracted 580 basis points to 5.1%

Even though the results above surpassed analysts’ expectations, the sentiment surrounding the report turned negative when Canadian Solar went on to provide weak outlook on the third quarter. The company stated that it expects revenue in the range of $570-620 million, which fell well short of analysts’ estimates of $669.32 million, and a gross margin in the range of 12-14%, which would be down significantly from the 22.9% margin reported in the year-ago period.

Should you buy Canadian Solar following the steep decline?

The second quarter was far from impressive for Canadian Solar, and its outlook on the third quarter is abysmal, so I think the post-earnings sell-off in its stock was warranted. However, I think these negative factors are priced into the stock at this point and the downside will be limited from here.

It now trades at very inexpensive forward valuations, including a mere 7.2 times fiscal 2015’s estimated earnings per share of $2.82, which is very inexpensive compared with its five-year average multiple of 26 and the industry average multiple of 13.7.

With all of the information provided above in mind, I think the post-earning sell-off in Canadian Solar represents a great long-term buying opportunity. Foolish investors should remain cautious while slowly scaling in to positions.

Should you invest $1,000 in Canadian Solar Inc. right now?

Before you buy stock in Canadian Solar Inc., consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Canadian Solar Inc. wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,345.77!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Energy Stocks

golden sunset in crude oil refinery with pipeline system
Energy Stocks

These 2 Energy Stocks Are a No-Brainer in Today’s Market

These two energy stocks have reliable operations and pay significant dividends, making them two of the best stocks that you…

Read more »

Canada national flag waving in wind on clear day
Energy Stocks

Top Canadian Value Stock I’d Consider During This Buying Opportunity

Are you looking to put some cash to work during this downturn? Here are two TSX stocks to have on…

Read more »

A plant grows from coins.
Energy Stocks

Got $25,000? Turn it Into $200,000 in a TFSA as Canadian Dollar Gains

This energy stock may not have a high dividend, but it certainly has a high rate of growth to look…

Read more »

A meter measures energy use.
Dividend Stocks

Where I’d Invest $15,000 in Top Utilities Stocks for Steady Income

These utility stocks are some of the top choices, but they aren't the usual group of investments.

Read more »

Trans Alaska Pipeline with Autumn Colors
Energy Stocks

How I’d Allocate $1,000 in Energy Stocks in Today’s Market

Discover why energy stocks are crucial for Canadian investors as the election approaches amidst tariff challenges.

Read more »

oil and natural gas
Energy Stocks

3 Canadian Energy Stocks to Buy and Hold for Decades of Passive Income

Energy stocks can be some of the best choices for consistent income, and these three remain top performers.

Read more »

oil and gas pipeline
Energy Stocks

Why Billionaires Are Pulling Cash Out of U.S. Stocks and Buying Canadian Energy

This analyst-recommended energy stock could be one to watch in 2025.

Read more »

oil pump jack under night sky
Energy Stocks

Top Energy Stocks to Invest in 2025

Most investors are avoiding energy stocks over fears that Trump tariffs could bring a structural change in the energy supply…

Read more »