The renewable energy sector is one of the few with strong growth prospects in the current environment. Therefore, the shares of SMA Solar, which makes inverters for solar systems, soared sharply when hostilities began in Ukraine. It has now consolidated…the stock would thus have the basis for the next bull run.
SMA Solar has presented this Thursday morning the preliminary calculations for the first quarter. These numbers matched the full-year 2022 forecast released on March 1, and thus caused little movement on their own. But they should bring the stock back to the minds of traders, a stock that has been immensely volatile in recent weeks. The reason: Due to the current general situation, SMA Solar has enormous obstacles to overcome on the one hand, but on the other hand it has excellent medium-term prospects ahead. What is it about?
Graphics for the values in the article.
Temporary headwinds versus long-term boom in demand
Chips are needed in the manufacture of solar inverters… and are currently in short supply. The order book is impressively large, but due to this lack of chips, SMA Solar cannot produce as much as it really could. Since the company, like many others, assumes that this shortage will last until at least the beginning of the second half of the year, the full-year forecast presented on the afternoon of March 1 only showed sales in the prior year range and remained extremely vague regarding the possible gain:
EBITDA, that is, profit before taxes, interest and amortization, will range between 10 and 60 million euros. In 2020, before the chips ran out, it was 72 million. Quite a few investors reacted in horror and then dumped the stock into the market. But then something unusual happened as you can see on the graph:
Source: market maker pp4
The stock acknowledged the meager outlook with a sour minus of almost 18 percent, but then immediately went back up…and quickly. Within a few days, the previous intermediate high was clearly surpassed. Those who grabbed it rightly argued the following: the lack of chips is persistent, but limited in time, while the potential of solar systems and thus also of components made by SMA Solar is due to the uncertain outlook supply of fossil fuels such as oil. , coal and gas are much larger and more durable. As soon as SMA Solar is able to produce as much as the order situation allows, a rapid jump in sales and corporate profits can be expected. In fact, there is something in this logic.
Clean correction on a solid landing zone
The broader market, recovering again, supported by hopes that the Ukraine crisis could calm down relatively quickly, led SMA Solar to take profits recently. Not surprising after a price increase of a good 75 percent in two weeks. However, we can see from the chart that the losses were not massive: the stock slowly consolidated, which on the one hand reduced the previous overbought level of the technical market (here on the chart the stochastic oscillator) and on the other hand the price It moved to the solid support zone in the 33.58 zone at 35.18 euros. An interesting basis for considering a trade on the long side.
Favorable risk/reward ratio with technical market tailwind
A 3-week consolidation with no noticeable strong pressure, market technicals near the oversold zone, a Q1 pre-hit confirming the known outlook, and a support zone nearby:
This is a mixed situation that traders who are willing to take risks could take advantage of by betting on imminent new upside potential with a long kill certificate. UniCredit’s SMA Solar Knock-Out certificate with a base price of EUR 27.516 and a KO threshold of EUR 30.38 would be ideal for this (WKN HB4T80), see below for detailed data.
It would be important to consistently protect yourself with a stop price on a breakout of the stock, which is just below the EUR 33.58/35.18 support zone. If the SMA Solar stock were to hit the first chart target price of EUR44.64, take profit should be considered; for the remaining position, the stop price would be adjusted to the entry price.
Important chart marks:
Resistances: 44.64 euros, 48.70 euros, 50.90 euros
Media: €35.18, €33.58
Long certificate on the share of SMA Solar
|Writes||Knock Out Long Certificate|
|course stop certificate||€0.55|
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