Why ReneSola Ltd. Shares Are Poised to Underperform

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of ReneSola Ltd. (NYSE: SOL  ) sank 6% today after Roth Capital downgraded the solar products specialist from buy to neutral.

So what: Along with the downgrade, analyst Philip Shen lowered his price target to $2.75 (from $5), exactly where the stock closed yesterday. So while contrarian traders might be attracted to ReneSola's sharp year-to-date price sluggishness, Shen's call could reflect a sense on Wall Street that its near-term headwinds are just too strong to allow for a significant rebound.

Now what: Roth expects ReneSola's profitability and cash flow to erode over the next couple of years. "While we acknowledge module ASPs are often more attractive in the DG segment, winning large volume orders can be difficult," said Shen. "This could create headwinds to module shipments and topline growth. Moreover, building out the necessary sales and distribution network to stay close to end customers will likely result in increased opex." Of course, with ReneSola shares now off about 55% from their 52-week highs and trading at a single-digit forward P/E, much of that risk might already be baked into the valuation. 

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  • Report this Comment On May 30, 2014, at 2:36 PM, Waldo wrote:

    The entire Chinese solar industry can be subject to import tariffs brought on by a complaint from SolarWorld. Even if tariffs are not applied, SOL is not poised to succeed. When the dust clears, CSIQ will emerge the clear leader in foreign solar companies. FSLR will be the big winner in N. America along with CSIQ as they are the suppliers of FSLRs panels.

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