Is JinkoSolar the Perfect Stock?

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Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if JinkoSolar (NYS: JKS) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at JinkoSolar.

Factor

What We Want to See

Actual

Pass or Fail?

Growth5-Year Annual Revenue Growth > 15%117.3%Pass
 1-Year Revenue Growth > 12%157%Pass
MarginsGross Margin > 35%21.4%Fail
 Net Margin > 15%12.7%Fail
Balance SheetDebt to Equity < 50%115%Fail
 Current Ratio > 1.30.95Fail
OpportunitiesReturn on Equity > 15%39.3%Pass
ValuationNormalized P/E < 201.65Pass
DividendsCurrent Yield > 2%0%Fail
 5-Year Dividend Growth > 10%0%Fail
    
 Total Score 4 out of 10

Source: S&P Capital IQ. Total score = number of passes.

With a score of four, JinkoSolar isn't lighting up the room with its perfection. Along with most of the rest of its peers, the solar player has seen its shares plummet lately, and despite what may look like amazing value for the shares, the company's future is extremely uncertain.

Jinko is a Chinese maker of silicon wafers and other solar products. For quite a while, solar stocks have been extremely cheap, as investors weigh the impact of potential reductions in government subsidies and a glut in the silicon market. Although U.S.-based solar companies like First Solar (NAS: FSLR) have seen big drops in their shares, Chinese companies including LDK Solar (NYS: LDK) and Suntech Power (NYS: STP) have a lot more uncertainty right now, as general concerns over the legitimacy of questionable Chinese small-cap businesses have spilled over even into legitimate companies based in the emerging market.

But Jinko has gotten hit by some much more alarming news. Earlier this year, Jinko finally responded to local criticism by shutting down one of its plants after allegations that toxic chemicals were leaking into a nearby river.

Meanwhile, results for the company have been discouraging. Even though it had favorable earnings reports earlier this year, Jinko reported last week that sequential quarterly shipments declined in the third quarter, with sales dropping 21% from the second quarter. Although Jinko avoided the loss that fellow solar stock Trina Solar (NYS: TSL) had, it still saw net income drop 72% -- and the company's guidance looks equally troubling going forward.

For Jinko to try and get back toward perfection, it needs to resolve its environmental problems. But beyond that, the shadow over the entire solar industry looks like it may persist as long as global economic problems are around. Until things get clearer for the global economy, Jinko shareholders may need to get used to being in the dark.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate the best investments from the rest.

Click hereto add JinkoSolar to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Finding the perfect stock is only one piece of a successful investment strategy. Get the big picture by taking a look at our "13 Steps to Investing Foolishly."

At the time this article was published

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