Sinovel Drops the Hammer on American Superconductor

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Yesterday the worst-case scenario came true for American Superconductor (Nasdaq: AMSC  ) investors. The company announced that Sinovel, its largest customer, has refused shipments and has yet to pay for previous shipments. In reaction, it looks like the market has already kicked the stock 48% lower today.

A company statement said, "Sinovel refused to accept contracted shipments of 1.5 MW and 3 MW wind turbine core electrical components and spare parts." After this blow, the company now expects fourth-quarter revenue to be just $42 million, and the company will report a loss for the quarter.

Analysts and investors have been worried about American Superconductor's reliance on Sinovel for revenue, but this comes just as the company is beginning to diversify. It is getting into power inverters for solar and wind power plants, competing with Satcon Technology (Nasdaq: SATC  ) and Power-One (Nasdaq: PWER  ) . The wind business is also adding customers like Dongfang Turbine Company and Inox Wind, which are just starting to ramp up production. And superconductors haven't even gotten started yet.

What in the world do I do now?
Now the question becomes whether to jump ship, hold steady, or look at this as a buying opportunity. American Superconductor doesn't have any debt and is expecting to report cash and equivalents of $240 million, or $4.73 per share, when it reports results, so that can be looked at as something of a backstop.

Could this possibly get any worse? This is obviously terrible news, but there are some bright signs to point to in the future. American Superconductor's market cap is down to $645 million, and new customers and products are ramping up. Plus, unless the relationship goes completely south, Sinovel isn't completely disappearing from the future. Admittedly, I thought this stock was a good deal at $26, and I may add to my position after this drop. Maybe I've had the wool pulled completely over my eyes but the future of American Superconductor seems too bright, and all of the downside almost eaten up. I'm not jumping ship -- but I am a little seasick today.

Interested in keeping up with what goes on at American Superconductor? Click here to add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium is in pain today because he's long AMSC stock and has sold AMSC put options, ouch. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Fool owns shares of Power-One. 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.

Read/Post Comments (6) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 06, 2011, at 11:57 AM, goldminingXpert wrote:

    Citron was right again. Unbelievable that the market kept this joke stock up so long. Finally closing my red thumb from 2008 at a 50 point gain today.

    I can hold a red thumb longer than the market can remain irrational!

  • Report this Comment On April 06, 2011, at 3:18 PM, mhy729 wrote:

    There should be a margin call charm for underperforms that are heavily in the red, and maybe have it replaced with a sort of 'vindication' charm for those who wait it out and succeed in later closing out the pick with a positive score.

  • Report this Comment On April 07, 2011, at 9:24 AM, Downtotheright wrote:
  • Report this Comment On April 07, 2011, at 10:46 PM, Downtotheright wrote:

    So I've noticed that as many as three law firms have announced their intention to launch class action lawsuits on behalf of AMSC investors based on the idea that management knew trouble was afoot with Sinovel and reassured investors otherwise. As a newbie, can anyone comment for me? I am assuming that this is ambulance chasing behavior.

    Little tiny bit long AMSC and still a believer.

  • Report this Comment On April 08, 2011, at 1:40 AM, Forkitover wrote:

    AMSC stock did a dead-cat bounce on Wednesday, 04/06/2011. That was your chance! You had to buy at the bottom and sell on the bounce! The stock now appears to be in a downtrend.

  • Report this Comment On April 12, 2011, at 4:19 AM, Mrfloyd5933 wrote:

    Do we know why Sinovel rejected the order? Was it indicative of the product it was buying or because Sinovel is in financial troubles?

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