Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Few Clouds for Suntech

What a day to be a rebel. Motley Fool Rule Breakers pick and Chinese solar energy supplier Suntech Power (NYSE: STP  ) reported a 174% year-over-year improvement in revenue in its first quarter, well ahead of the 154% investors were expecting.

Such outrageous growth rarely lasts. But, in Suntech's case, there's reason to remain optimistic. Or at least, that's how management sees it. Quoting Dr. Zhengrong Shi, Suntech's chairman and CEO, from the press release: "...We already have firm purchase contracts in place for our entire 2007 projected output, which is notable given that this volume is more than double our 2006 output. In fact, we are already receiving purchase orders for 2008."

The balance sheet backs up his claim. Accounts receivable skyrocketed by nearly -- wait for it -- 3,000%. Inventory, meanwhile, was up 208%.

Such aggressive use of working capital usually isn't cause for celebration. I'm not sure it is here, either. Suntech has taken on more than $800 million in total debt to fund growth. Nevertheless, the point remains: Demand for Suntech's photovoltaic cells has outstripped supply, and management is running to catch up.

And catch up they will. With more raw materials, Suntech has upped its full-year production capacity from 390 megawatts (MW) to 480 MW. (Photovoltaic cells are measured by their ability to convert sunlight into usable watts of electricity.) That, too, bodes well for future growth.

But growth alone isn't enough. Just ask the investors in Evergreen Solar (Nasdaq: ESLR  ) . For Suntech, expansion is proving to be costly. Margins fell by double digits when the firm was forced to take on higher-priced inventory to meet demand.

Management says the problem is fixed and that it has all the silicon it needs for the rest of the year, which should lead to a return to above-average margins. Let's hope so. Growth is great, but not growth at any price.

Bask in the glow of related Foolishness:

•  How was our Foolish forecast?

•  Suntech wants to raise the roof.

•  Being bullish on America couldn't hurt, I suppose.

Suntech Power is part of the market-beating Motley Fool Rule Breakers portfolio, which contains seven stocks that have more than doubled. Intrigued? Click here to test-drive the service for 30 days. There's no obligation to subscribe.

Fool contributor Tim Beyers, who is ranked 6,458 out of more than 29,300 in CAPS, is a sucker for growth stocks and a regular contributor to David Gardner's Rule Breakers team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Tim's portfolio holdings can be found at his Fool profile. His thoughts on Foolishness and investing may be found in his blog. The Motley Fool's disclosure policy went to the beach over the holiday weekend to take in some sun.

Read/Post Comments (0) | Recommend This Article (42)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 528710, ~/Articles/ArticleHandler.aspx, 10/27/2016 5:38:42 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 8 hours ago Sponsored by:
DOW 18,199.33 30.06 0.17%
S&P 500 2,139.43 -3.73 -0.17%
NASD 5,250.27 -33.13 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
STPFQ $0.00 Down +0.00 +0.00%
Suntech Power Hold… CAPS Rating: *
ESLRQ.DL $0.02 Down +0.00 +0.00%
Evergreen Solar, I… CAPS Rating: *