This solar cell manufacturer scores highly on Peter Lynch's selection criteria.
A recent Fool article looked at a number of companies whose valuations look tempting using Peter Lynch's formula of adding the dividend yield to expected long-term growth rate, and dividing the total by the price-to-earnings ratio (PER).
Top-scorer on the list was AIM-listed solar cells maker Jetion Holdings Ltd (LSE:JHL).
Of course, any such mechanical system is fraught with difficulty as the author points out, particularly when it comes to forecasting future earnings with any degree of accuracy. But Jetion is definitely worthy of consideration.
Fast-growing
The company is a growing quickly as worldwide demand for environmentally-friendly power generation has accelerated in recent years. Jetion's solar cells convert sunlight directly into electricity. The group's products are used in a wide variety of industries, including generation, illumination, street lighting, national defence and maritime. In fact, Jetion was named the "Fastest-Growing Company in Deloitte Technology Fast 50 China 2008".
What may put a lot of private investors off is that the company is based in China and registered in the British Virgin Islands (BVI). But then if this wasn't the case, I'm sure it would command a more realistic valuation; "you pays your money and you takes your choice" as the saying goes.
Tiny P/E ratio
The main single value metric of interest here is the forward P/E ratio. Consensus broker forecasts for 2010 show earnings of 30.3p, giving a PER of just of 2.1. If this is realistic or not, only time will tell. But looking backwards, it's easy to see how it could be feasible. Sales of $106m in 2007 were followed by sales of over $250m last year and pre-tax profit roughly doubled to $20m, with earnings per share of $0.24. Yet at the current mid price of 63.25p, Jetion is valued at less than £47m. A repeat of 2008 this year would put the shares on a PER of less than 4.5. And the shares still sit at just 42% of their float price of 151p two years ago.
Overall, the doubts seem to centre on whether the high demand for Jetion's solar cells will continue and the threat of increasing international competition. Also, April's trading statement knocked a quarter off the price when it revealed that although gross profit was in line with expectations, the auditors had unearthed a few things that weren't so pleasant. Profits, it was said, would be below market expectations and the company had seemingly paid for silicon raw materials it hadn't received and had to write down the value of some stock. Of course, such a statement did nothing whatsoever to allay investors' fears over the Chinese base and BVI registration.
Resilient results
However the final results for 2008 then came as a pleasant surprise overall. Sales were up 141% to $250.9m, gross profit was up 168% to $40.8m and pre-tax profits came in up 328% to $20.1m.
Jetion's solar cell manufacturing capacity doubled in the year to 100MW and the company was bullish about the future despite worldwide economic woes. Since March this year, we were told, operating conditions have returned to the same level as the corresponding period last year and Jetion has steady orders from its customers.
Meanwhile, the company had net cash of $3.6m at the year end, net cash inflow in the year from operating activities was US$15.4m and overall net tangible asset value stood at over ££64m at today's exchange rates.
Although the shares are nowhere near their previous highs, they have come a long way in a very short space of time, having been as low as 24p around Christmas. And we may be in for a wobble as investors pocket some gains. Who really knows? But if the broker is only half right, the shares still look very cheap.
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