When Canadian Solar Inc. shares reached a record in 2008, as the idea of producing electricity from sunshine was taking off, chief executive officer Shawn Qu decided it was time to pivot.
The 51-year-old head of the Guelph, Ont.-based company started building solar-power plants in addition to low-margin, high-volume panels in China.
That two-pronged strategy has given the company the best returns in the solar industry. It's also posted the best performance on the Nasdaq composite index since late 2012, when the sector was in the throes of a two-year slump, and the second-highest return among Canadian companies.
"The trend these days is to move downstream" with panel makers also developing solar farms, Mr. Qu said in an interview. "We are a couple of years ahead of some of our peers."
Canadian Solar was founded in 2001 and went public in 2007 as solar energy was gaining popularity in Europe. Its shares reached a record of $45.88 (U.S.) in 2008, but by 2010 it was facing stiff competition from rivals in China that were investing heavily in manufacturing capacity.
That led to a global surplus that dragged down panel prices by more than two-thirds and triggered a solar slump that lasted from mid-2011 into 2013. Canadian Solar's nadir came in November, 2012, when its shares fell to $2.03.
When Mr. Qu's rivals began to expand their manufacturing operations into new areas such as polysilicon, the main raw material in photovoltaic cells, the CEO looked for a business model less dependent on selling commodity products.
The company has developed, designed and built 520 megawatts of utility-scale solar projects since 2009 in countries including Germany, Spain, Bulgaria, Peru and Japan.
The move helped Canadian Solar control expenses during the slump, said Thiemo Lang, a portfolio manager in Zurich at Robecosam AG, which owns about 1 per cent of the company's shares.
As a result, the company is "very cash-generating right now."
The glut of solar capacity that's hung over the industry since 2011 is finally abating, said Jed Dorsheimer, an analyst at Canaccord Genuity Inc. in Boston.
"We're coming into more of a parity situation which should result in more favourable economics for module suppliers, Canadian Solar in particular," he said.
That strategy is paying off for investors. From December, 2012, through the first quarter of this year, the shares have gained 1,170 per cent, the biggest gain on the Nasdaq. They have climbed 50 per cent this year and closed at $36.24 on Thursday.
Over the past two years, only one Canadian-based company has done better, Concordia Healthcare Corp.
Despite those returns, Canadian Solar is still undervalued. The forward-looking price-to-earnings ratio is 10.5, data compiled by Bloomberg show. That's the third-lowest on the Bloomberg Intelligence Global Large Solar Energy Index of 21 companies.
Trina Solar Ltd., the biggest solar manufacturer, comes in at 11.3, and the largest U.S. solar manufacturer First Solar Inc. has a PE ratio of 22.5. SunEdison Inc., the most valuable U.S. solar company is worth $7.5-billion, more than triple Canadian Solar's $2-billion, and isn't expected to report a profit in the next several years.
Canadian Solar by contrast, earned a record $239-million last year on $2.96-billion in sales and panel shipments of 3.1 gigawatts. It expects to sell as much as 4.3 gigawatts of panels this year, a 39-per-cent increase.
The 10 analysts tracking Canadian Solar expect it to continue to climb, all have "buy" ratings on the stock and the consensus 12-month target price is $46.77.
"It wasn't on anyone's radar when the stock was at $3," said Mr. Lang. "If you look at them and compare them to the U.S. players like SunEdison and First Solar, these folks look relatively attractive."