Image source: Trina Solar.

What: Shares of solar panel maker Trina Solar Limited (NYSE: TSL) fell 17.6% in May as investors soured on the solar industry in general.

So what: Early in the month, SolarCity and then Sunrun reported a big slowdown in growth early in 2016, indicating that the residential solar market could be in for a rough year. That was compounded by SunPower and First Solar reporting results that included very little backlog for 2017 (2016 is essentially booked out). So, there are questions about the demand for solar panels in the future, which is worrisome given the struggles Chinese panel manufacturers have had in the past.

Late in May, Trina Solar reported first-quarter earnings that showed a 15.1% sequential decline in revenue, a drop of 200 basis points in gross margin to 17.1%, and a 36.1% decline in net income to $26.6 million. So, some of the fears about slowing demand showed up, which is troublesome given the company's plans to expand module shipments to 6.30 GW to 6.55 GW this year, about 10% of the global solar market.  

Now what: Solar stocks can be a very volatile investment, so don't read too much into one month's move on the market. What's more important is that Trina Solar is barely profitable, despite building the biggest manufacturing base in the industry. That's a risky position because any decline in global solar demand or increase in supply by competitors could lead to falling margins as companies compete on price. I'm not jumping into any Chinese solar stock today, but keep an eye on demand and margin trends going forward to get an indication of how the market evolves as the year goes on because Trina Solar is a bellwether for the entire industry.