Should You Get Out of Energy Conversion Devices Now?

Sometimes, it takes a difficult decision to move out of a stock that you may have followed for days, months or even years. You hold on to it in the hope that there will be a time when its fortunes look up and it gives you the much-needed bliss that you had desired. But how long will you bear having such a stock in your otherwise stellar portfolio? Sometimes you need to take the pain of dumping it off and direct your energies to some fruitful venture. The shareholders of Energy Conversion Devices (Nasdaq: ENER  ) could be facing the same dilemma. Let's take a closer look and see whether there's still hope for this stock.

Fundamentals: Almost nothing
Although the solar industry has witnessed a difficult period this year, no company has performed as badly as Energy Conversion Devices. The company's compounded annual revenue growth over five years stands at 16%, not bad in normal industries but the lowest among its solar peers. Energy Conversion's cash flow is a bit of an eyesore, as the company has reported negative cash from operations in almost every quarter for the last 10 years. What's more, profitability has become more of an exception rather than the norm at Energy Conversion, with net income mostly in the red in nearly every quarter.

Operations: As good as nothing
Energy Conversion had cut down its production in the just-concluded quarter by a staggering 84% from the one that preceded it, citing softness in the European market. This particular move sent the costs shooting to $3.40 per watt from $1.45 earlier. A reverse strategy would have been better if the company had multiplied its shipments like JinkoSolar (NYSE: JKS  ) or managed its costs like ReneSola (NYSE: SOL  ) , which managed to stay profitable in these times.

Furthermore, almost half of the $73 million revenues that the company earned in the previous quarter came from a project in Italy that's almost complete. This will indeed sound disturbing to anyone holding this stock as one wonders how long the company would survive on small morsels.

The Foolish point
Surprisingly, the company has provided a bit of outlook. Energy Conversion plans to manufacture solar products for military and consumer use, and this news sent the shares up a staggering 25%. In my view, this was the candle flickering before ultimately burning out.

To stay on top of Energy Conversion's fate, add it to My Watchlist.

Fool contributor Harsh Chauhan does not own any of the stocks mentioned in the article. 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.


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  • Report this Comment On January 17, 2012, at 1:29 PM, ecdfam wrote:

    Hey Harsh, "Candle flickering?"

    I'm looking forward to your follow-up write-up on ECD with a rationale for why it's stock is up over 550% year-to-date.

    Be sure to mention their Open Solar program including the solar cover for the Kindle. And be sure to include their panels covering landfills.

    You should certainly also include a mention that they are currently upgrading their equipment inorder to produce a 50% increase in efficient panels using a patented process. All this while, ECD still having over $2/share of Cash in the bank.

    I anxiously await your follow-up.

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