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Why Shares of Canadian Solar Inc. Plunged 19% in June

By Travis Hoium - Jul 8, 2016 at 8:42AM

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A natural disaster may have a big impact on Canadian Solar Inc. for the rest of 2016.

Image source: Getty Images.

What: Shares of solar panel manufacturer Canadian Solar Inc. (CSIQ 3.27%) dropped 19.1% in June as bad news hit the company's manufacturing side, and solar stocks in general fell.

So what: On June 24, Canadian Solar announced that its Funing County, China solar cell factory had been severely damaged in a tornado. The plant would have accounted for 15%-20% of the company's cell production in the third quarter, so there could be a material impact on operations in 2016. 

Broadly, solar stocks fell in June on concern that 2017 will be weaker than this year. Utilities aren't signing contracts for solar energy in big numbers, and that could leave a company like Canadian Solar with a shrinking pipeline and overcapacity of solar panels.

Now what: As Chinese solar manufacturers go, Canadian Solar is well positioned with a large market share and a big project development business. But it also has razor thin margins, so a decline in business next year or a loss of revenue from the manufacturing disaster could negatively impact the company. I'm cautiously optimistic for Canadian Solar going forward, but there are a lot of questions that management needs to answer over the next year.

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