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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.