The photo voltaic power sector has quietly turn out to be one of many market’s strongest performers this yr, with many clear power shares staging spectacular recoveries. But DAQO New Power (DQ) continues to pattern decrease, considerably underperforming each its friends and the broader market. Relative weak spot throughout a interval of sector energy is usually an necessary warning signal for buyers.
DAQO is without doubt one of the world’s largest producers of high-purity polysilicon, the essential uncooked materials used within the manufacturing of photo voltaic panels. Whereas long-term international demand for photo voltaic power stays sturdy, the corporate is closely uncovered to the economics of the polysilicon market, the place circumstances have deteriorated sharply over the previous yr.
A number of elements proceed to weigh on the inventory. China, the dominant drive in international photo voltaic manufacturing, has skilled a extreme oversupply of polysilicon capability, driving costs sharply decrease and compressing revenue margins throughout the trade. On the identical time, slowing gross sales development, persistent weak spot within the Chinese language fairness market, and a gradual stream of downward earnings revisions have additional undermined investor confidence. Analysts now count on the corporate to stay unprofitable, a dramatic reversal from the sturdy earnings energy it demonstrated in the course of the photo voltaic growth only a few years in the past.
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DQ Shares Drop on Earnings Downgrades
DAQO New Power has skilled a really sharp boom-and-bust cycle over the previous a number of years. Annual income peaked at roughly $4.6 billion in 2022 as polysilicon costs soared, however the mixture of large capability growth and weaker pricing has dramatically altered the panorama. Immediately, trailing 12-month income has fallen to only $568 million.
The earnings image has deteriorated as effectively. Over the previous 60 days, analysts have considerably decreased their revenue forecasts, with consensus estimates now calling for substantial web losses each this yr and subsequent. These persistent downward revisions have earned the inventory a Zacks Rank #5 (Robust Promote) score, reflecting the more and more difficult fundamentals dealing with the corporate.
Whereas the long-term outlook for photo voltaic power stays compelling, the present oversupply within the polysilicon market continues to stress pricing and profitability, leaving DAQO in a troublesome place.
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Ought to Buyers Keep away from DQ Inventory?
Whereas the long-term outlook for photo voltaic power stays engaging, buyers ought to do not forget that nice industries don’t all the time produce nice shares. DAQO stays caught in a troublesome a part of the cycle, with oversupply driving down polysilicon costs and earnings expectations persevering with to deteriorate.
The mixture of falling gross sales, projected losses, persistent earnings downgrades and relative weak spot towards an in any other case sturdy photo voltaic sector makes it troublesome to construct a bullish case for the shares at present. Till fundamentals enhance and analysts start elevating estimates once more, buyers can be higher served wanting elsewhere throughout the clear power area.
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DAQO New Power Corp. (DQ) : Free Inventory Evaluation Report
This text initially printed on Zacks Funding Analysis (zacks.com).
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