Suntech (STP) I wish you were lower

I have a full sized position of Suntech (STP) in a personal account. Despite that I was disappointed by the large, 9.7%, rise on Friday. I had been hoping to be able to pick up more STP down around the March lows of $30. I had an alert set at $35 and depending on market conditions would have bought around then. Only time will tell if I’ll get that opportunity now.

As this article highlights Cowen and Co. analyst Rob Stone reiterated his outperform and made the bold call that 2009 earnings could come in as high as $3.35, mainly driven by gross margin expansion. The current consensus is $2.58 with a range of $2.02 - 3.06.

So why is a company that has been growing at over 100% for the last five years and is predicted to grow at 38% for the next five selling at a forward P/E of 16? And why did I think I could buy shares even cheaper?

The answer to the both questions is investor sentiment. Stocks like STP are tethered by long elastic bands to their fundamentals. The elastic band is continuously stretched and then released by investors based on their sentiment.

This doesn’t mean that you should ignore STP’s fundamentals. However, it does mean you should consider weighting technical and behavioural inputs more heavily.

STP currently has ttm P/E of 35 on $1.19 of eps. Apply that to 2009 consensus earnings and you get a rough price target of $90. Whenever I see the possibility of a double in less than two years I look more closely.

Before I go all giddy with the profit potential, let’s go back to investor sentiment and why I was hoping for a $30-35 price.

1. I want to own more of STP, but now that I have a full position I only want to buy at fantastic prices.
2. Oil. I believe oil is in a bubble and that people believe alternative energy only makes sense with high oil prices. When the oil bubble pops I think solar shares will get slammed.
3. Investors look through a sector lens rather than a fundamental bottom lens. Solar stocks are traded as a group rather than on their individual merit.
4. The recent trend has been down and the recovery from the March low was very sharp so a revisit to the mid-low thirties was not out of the question.
5. It never hurts to be hopeful. I was hoping for lower prices as currently I am a net buyer of Suntech. For me to be a seller again I’d need prices over $60 to even start to think of trimming.