Anatomy of Success: Daqo New Energy (DQ)
The Zacks Rank methodology is a great way to identify the best companies to invest in and is a useful tool for beginner and more experienced investors alike; it discovers companies both big and small that have the right characteristics to produce superior gains.
When a company earns that coveted Zacks Rank #1 (Strong Buy) title, its means they have a high probability of outperforming the market over the next one to three months. But, achieving this high rank is not an easy thing to do, as only 5% of companies within the Zacks Rank universe earn this position.
Below, we highlight a stock that has persevered within a volatile industry, and by following our ranking system, investors could have realized some decent gains.
Daqo New Energy Corp. (DQ)
Daqo New Energy manufactures and sells high-quality polysilicon to photovoltaic product manufacturers. The polysilicon is then further processed into ingots, wafers, cells, and modules for solar power solutions. The company was formerly known as Mega Stand International Limited and is headquartered in Wanzhou in the People's Republic of China.
Heading into its third quarter fiscal 2017 earnings release, DQ was a #3 (Hold) stock, Earnings of $2.35 per share handily beat the Zacks Consensus estimate, while revenues of $89 million also beat our consensus estimate and grew nicely year-over-year. Breaking down its polysilicon cost structure, total production cost (including depreciation) was $8.85/kg during the quarter, and cash cost (excluding depreciation) was $7.16/kg.
As a result of its strong performance, DQ was added to the Zacks Rank #1 (Strong Buy) list on November 17, and shares closed at $43.06 that say.
Daqo New Energy was made a #1 stock again on March 2 after it reported impressive fourth quarter earnings. Both earnings and revenues beat our consensus estimate once again, the top and bottom lines improved from the prior-year period. Additionally, 22.3 million pieces from the company’s Chongqing water facilities were sold to customers in Q4. DQ also saw record-high quarterly production volume of 5,339 MT and record-high external sales volume of 4,730 MT. Five months after first becoming a Strong Buy stock, DQ’s share price increased over 11% to $47.97 per share.
From then on, DQ has maintained its presence on the Strong Buy List, as its currently a #1 stock. Shares currently trade at around $52.57, up nearly 23% from when the company was first made a #1 pick. In the past one year period, DQ stock has surged over 180% compared to the S&P 500’s gain of 10.8%.
Here, this table shows the price performance of DQ (in red), as well as the 12-month forward looking EPS estimate (in green) from the last 12 months. During this stretch, DQ never moved lower than a Zacks Rank #3 (Hold).
By utilizing the Zacks Rank, investors are able to easily identify elite stocks that are best positioned to beat the market on a consistent basis, and how to hold those top stocks as they continue to grow.
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