Alternative Energy Revenue Displays Rewards of Taking Market Share

Last time I wrote about alternative energy stocks I looked at the basic business model and we saw how rapidly it became a money loser in 4Q08. This time I am going to look at the revenue dimension of the industry and see which company is winning or losing market share. By way of reminder, the companies that I looked at are included in Table 1.

Table 1. Select Alternative Energy Stocks

alt-energy-companies

Recall that the total revenue for these 12 suppliers over the last 8 quarters has shown remarkable quarter over quarter growth until 4Q08 when there was a dramatic 16.7% decline (See Figure 1.)

Figure 1. Revenue Drop off in 4Q08

solar-revenue-dips-in-4q08

Source: Chris Montaño, CFA; Gridstone Research

I looked at the revenue composition to see which companies are gaining market share and which are losing. Sometimes a revenue shortfall is an opportunity to see which company has committed and financially capable buyers and which have a weaker sales channel that evaporates quickly. Along these lines, one very interesting metric I look at is the relative percentage contribution of industry total revenue by each company over the 8 quarter period. Among these percentages, I found one very interesting comparison that I thought chartworthy. It is the relative revenue percentage contribution by two companies, First Solar (FSLR) and Suntech Power (STP) (See Figure 2.)

Figure 2. Suntech Power and First Solar Relative Revenue Contribution

fslr-stp-revenue-percentages1

Source: Chris Montaño, CFA; Gridstone Research

You may say, “well that is interesting but how do I make money from it?” In order to answer that, I thought it might be good to look at the two stocks relative performance as well. So I went to Google finance and brought up a chart of relative performance over the same 8 quarter time frame. While both stocks show the scars of the bear attack, there is a distinct reward for winning market share (See Figure 3.)

Figure 3. Relative Performance over 8 Quarter Period for STP and FSLR

02-apr-10-1416-chris

Source: Google finance

Does market share matter in growth markets? It seems that there is a 433%+ premium attached to it in this case. That is significant.  The only challenge is making the determination in the first place. And for this, you will not usually find the answers in a set of financial statements.

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