How Low Will LDK Solar Go?

Shares of LDK Solar (NYSE: LDK  ) hit a 52-week low yesterday. Let's look at how it got here and whether clouds are ahead.

How it got here
LDK Solar had an interesting day yesterday. The stock opened at a new 52-week low after the company released a terrible earnings report. But the stock rose throughout the day and ended 7% higher. I covered the earnings report here, so let's take a step back and look at what's really happened over the past year at LDK Solar.

The decline in solar stocks as a whole has been fast and furious this year as the industry struggles with over capacity and rapidly falling prices. Manufacturers from First Solar (Nasdaq: FSLR  ) to Suntech Power (NYSE: STP  ) have seen margins drop and have swung to a loss as a result. LDK Solar has been hit harder than most because it is a supplier of polysilicon and solar cells in a market that has too much of both, but its stock has actually held up better than some competitors.

LDK Chart


LDK data by YCharts

The problem going forward for LDK is that manufacturers are using their own capacity instead of buying from LDK. This has helped push gross margins well below industry leaders Suntech, SunPower (Nasdaq: SPWR  ) and First Solar while cell supplier JA Solar (Nasdaq: JASO  ) stays ahead as well.

 

Gross Margin (most recent quarter)

Market Cap.

Total Debt

LDK Solar

(10.1%)*

$419 million

$3.3 billion

Suntech Power

9.9%

$487 million

$2.3 billion

JA Solar

0.5%

$245 million

$830 million

SunPower

7.9%

$722 million

$975 million

First Solar

35.1%        

$1.63 billion

$664 million

Source: Company filings and Yahoo! Finance. * LDK Solar's gross margin is adjusted for a one-time write down in the fourth quarter.

The heavy debt load LDK has built up is also a major red flag for investors. With sales falling, margins declining, and debt hanging over the company it's no wonder the stock is trading near a new low.

What's next?
The current industry challenges aren't going away any time soon so it's hard to see light at the end of the tunnel for LDK Solar. The company will record a significant level of photovoltaic system project revenue this year, which is higher margin than module manufacturing, but I don't see it overcoming the manufacturing challenges it faces. There's also LDK's debt to consider, which is like an anchor around the company going forward.

Investors in the CAPS community have rated the stock at two-stars, one away from our lowest rating, a sign that there's not a lot of faith in the stock. I don't see a turnaround any time soon because financial results are getting worse and worse.

I'm even putting in an underperform CAPScall on my CAPS profile to pack up this pick. Disagree? Let me know what you think in our comments section below.

Interested in reading more about LDK Solar? Click here to add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium owns shares of SunPower in personal and managed accounts. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

Motley Fool newsletter services have recommended buying shares of First Solar. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (1) | Recommend This Article (2)

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.

  • Report this Comment On May 01, 2012, at 5:32 PM, Speculatormaster wrote:

    This article is incomplete, if you can show how much debt companies have, also you must show how much cash companies have to pay its obligations.

Add your comment.

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: 1876266, ~/Articles/ArticleHandler.aspx, 9/1/2014 4:10:41 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...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement