TPS Trade Alert – June 16, 2014
June 16, 2014
Recommendation:
Buy STR Holdings (NYSE: STRI) up to $1.75 per share.
Trade Rationale:
With the price of oil shooting higher (over $106 per barrel of crude), it’s time once again to look at energy alternatives. Here we are again, about to watch our gas prices soar due to some fighting going on nowhere near the US.
In this case, it’s militants in Iraq causing the commotion. Iraq is the second largest oil producer in OPEC, so it does pose a risk to global oil supply (to some extent).
But why bother? There are better options for energy and fuel – natural gas being the most prominent one right now.
And then there’s solar power.
Crude oil is much more important as a fuel source than as an electricity generator. However, there’s no reason that solar couldn’t completely replace oil in terms of electricity production.
Solar power is becoming more and more popular by the week. In fact, I just signed up for solar power for my own house. It’s going to significantly cut my power costs.
As solar equipment becomes cheaper to produce and more efficient, there’s going to be little reason to NOT switch to solar… at least in areas where there’s a fair amount of sunlight. Moreover, technology is basically already in place for solar to function perfectly fine in cloudy climates and possibly even in moonlight.
Now, when talking about solar, most investors focus on the manufacture of photovoltaic cells. However, solar panels are more than just PV cells. Solar components need to be encapsulated in order to withstand the elements.
And, the leading solar encapsulation company just happens to be trading at an extremely attractive price.
That company is STR Holdings (NYSE: STRI).
STRI develops encapsulants for solar module manufacturers. These encapsulants protect the embedded semiconductor circuits within solar panels. The company’s products are used in both crystalline silicon and thin-film solar modules.
Solar encapsulation is a standard and necessary part of constructing solar panels, as is seen by the more than 80 solar module manufacturers serviced by STRI. The company basically pioneered the market over 30 years ago with the invention of the EVA (a type of material) encapsulant.
STRI is doing some good things for investors such as reducing costs and repurchasing shares. However, the company’s sales have taken a hit lately mostly due to falling prices across the industry.
On the bright side, the company’s adjusted EBITDA – while still negative (-$2.9 million in the most recent quarter) – is showing signs of improvement. Positive adjusted EBITDA is certainly a possibility in the next quarter or so.
Here’s the thing…
What I really like is the company’s balance sheet. STRI has over $26 million in cash and zero debt. Currents assets are also a healthy 3.8x current liabilities.
All of the company’s cash and other assets give it a book value of $3.10. That’s basically twice what the company is actually trading for!
In other words, the company’s worth a lot more on paper than it is in reality. Should management fail to turn sales around, STRI will most likely either get acquired or broken up. Either way, the stock should nearly double on one of those events.
And if doesn’t happen, it means sales and profit potential have improved dramatically. No matter what, the investors win!
Let’s grab shares of STRI now.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
| Company: | STR Holdings |
| Ticker: | STRI |
| Recent Price: | $1.51 |
| Market Cap: | $39.6 million |
| Avg. Daily Volume: | 155,916 shares |
Chart:
Category: TPS Trade Alert
