Is GT Advanced Technologies a Buy?
The solar industry has been through the ringer in the past six months, and as a result, one of the biggest suppliers has been socked by the stock market. In the past six months, GT Advanced Technologies (NAS: GTAT) -- one of the few solar stocks that performed well in 2010 -- has gone from trading at more than $12 to hovering around $8.
But is this a great buying opportunity, with the company's expansion into the LED market and the solar market reaching a low spot? It might take a while for solar to pick up steam again, but new low-cost equipment will become essential in the future.
The problem right now is that fiscal second-quarter results weren't terribly impressive. Revenue fell to $217.7 million, and net income fell from $52.1 million to $36.9 million in the quarter. That caused management to lower fiscal 2012 revenue guidance to $950 million-$1.05 billion and earnings per share guidance to $1.45-$1.65.
Value in a growing market
Lowering guidance never makes the market happy, but at the low end of earnings guidance, shares are trading at just 5.8 times 2012 earnings. With $494 million in cash and just $91 million in long-term debt, the stock appears priced for disaster. But that isn't the case considering that $2.1 billion in backlog includes $955 million in a sapphire business that has barely gotten off the ground.
The sapphire business should soften slowing demand from solar customers like LDK Solar (NYS: LDK) and Trina Solar (NYS: TSL) , which are dealing with excess capacity in the industry. But the slowdown in demand won't last forever as polysilicon becomes less expensive to produce with new equipment from GT Advanced Technologies.
Foolish bottom line
The weakness in the solar market has really hurt GT's share price but the business is still solidly profitable company that is diversifying into new markets. I don't think the market fully appreciates the company's long-term potential and that's enough to earn a green thumb on My CAPS page, which you can follow here.
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At the time this article was published Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.