Why Suntech Power Is Poised to Pull Back

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, solar energy company Suntech Power (NASDAQOTH: STPFQ  ) has received a distressing two-star ranking.

With that in mind, let's take a closer look at Suntech and see what CAPS investors are saying about the stock right now.

Suntech facts

Headquarters (founded)

Wuxi, China (2006)

Market Cap

$266.4 million



Trailing-12-Month Revenue

$2.7 billion


CEO/Acting CFO David King

Founder/Chief Strategy Officer Zhengrong Shi

Return on Capital (average, past 3 years)



$473.7 million / $2.3 billion


First Solar

JA Solar

Trina Solar

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 18% of the 28 All-Star members who have rated Suntech believe the stock will underperform the S&P 500 going forward.

Earlier today, one of those bears, fellow Fool Simon Erickson (TMFInnovator), succinctly summed up the underperform case for our community:

This company has got some real problems.

Short-term pop this week on news that China will build more than 35GW of solar by 2015. Note though that this is from the State Council -- i.e. artificial demand -- and not true demand that comes from the markets.

Wuxi Suntech, the company's primary manufacturing subsidiary, has entered bankruptcy courts after it failed to pay $541 million of debt that came due in March. Debt is now eleven times greater than STP's market cap.

Even if Suntech miraculously gets out of debt without wiping out equity holders, it is still stuck in a brutally competitive industry. There is an oversupply of solar PV in the world, with everyone chasing after the big projects and margins getting squeezed ever thinner.

Europe is also putting huge tariffs on Chinese panels later this summer, which more-or-less isolates Suntech to the artificial sovereign demand of China. Not a recipe for success.

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