Trina Solar Ltd. (TSL)

The worldwide demand for energy continues to grow while at the same time, environmental concerns have put pressure on traditional sources such as fossil fuels. As governments and individuals alike strain to find a balance between these two conflicting needs, alternative energy companies are being brought into the spotlight.

One of the most popular energy sources for electricity will likely be solar power. Governments in many developed nations are pushing subsidies to stimulate demand as well as innovation in this field, and manufacturers of solar power equipment are taking advantage of these tailwinds.

Trina Solar (TSL) is one company taking advantage of the demand. The company is a supplier of components to make solar panels and has become increasingly vertically integrated. Analysts seem to agree that in order to remain competitive in the field, companies should control as much of the manufacturing process as possible from procuring the raw materials to producing the ingots, to manufacturing the wafers, to assembling the cells, and finally compiling the modules.

Trina has taken great strides to be involved in all parts of the process. The company has been able to manage the rising prices of silicon by purchasing recycled silicon at a significant discount. It already claims to have agreements for the purchase of half of its needs for 2008 which adds some stability to the process in the face of a volatile market for raw materials. In early June, the company raised $156m in a secondary offering of stock and will use most of the proceeds to beef up their production lines presumably adding functionality on the downstream side of the manufacturing chain.

Currently, the primary users of solar power are customers who are already on a public utility system, but want to supplement their consumption using solar energy. Trina noted in their prospectus that solar power production is expected to grow at a 44% compounded annual growth rate (CAGR) through 2010. The growth prospects are shared by the few analyst that follow the company as EPS are expected to grow from $0.52 in 2006 to $1.61 in 2007 and likely $3.72 in 2008. If these projections are relatively close, the stock is actually trading at a very reasonable level especially considering the robust long-term growth prospects.

While i currently do not have a position in TSL, I have participated in both the IPO and the recent secondary and am considering taking a longer-term position as the stock seems to be finding support after supply concerns begin to abate. The trading is likely to be a bit volatile as policy news can really affect the sector, but the risk to reward ratio appears very attractive and worth the time and effort to warrant deep research and possibly investment of capital.

FD: Author does not have a position in TSL