Why ReneSola Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of photovoltaic manufacturer ReneSola (NYSE: SOL  ) have fallen 20% today after the company released its third-quarter earnings report.

So what: Revenue jumped 92.2% from a year ago to $419.3 million and came in well ahead of the $360.7 million estimate. But net loss was $200.3 million, or $2.23 per ADS, which was far larger than the estimated loss of $0.22. 

Now what: The real story here is that ReneSola tried upgrading a polysilicon factory last year in hopes of lowering costs and improving quality. That effort failed and management abandoned it last quarter, sucking up a $194.7 million impairment along the way. Other than that, the quarter was great.

What worries me is that gross margin was only 8.1% last quarter, and management expects a 9%-11% margin for the fourth quarter. That's well below the best in the industry and will keep me from buying today's drop.

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