Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Canadian Solar Inc. Plunged 17% in March

By Travis Hoium - Apr 11, 2017 at 8:25AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

As earnings decline, Canadian Solar Inc. faces more scrutiny from investors.

What happened 

Shares of Canadian Solar Inc. (CSIQ 2.57%) plunged 16.6% in March, according to data provided by S&P Global Market Intelligence, after fourth-quarter 2016 earnings results fell short of expectations. In a highly competitive solar market, this isn't a great way to start 2017. 

So what 

Adjusted net profit was $14.2 million, or $0.24 per share, compared to $15.6 million in the third quarter. Most of the decline can be accounted for by a 390-basis-point drop in gross margin sequentially to 13.9%. 

Solar panels on a residential solar rooftop.

Image source: Getty Images.

If low panel prices continue, which is likely given an oversupplied market and the potential for 2018 solar installations dropping from 2017, there will likely be trouble around the bend. For the first quarter, management expects gross margin to be between 13% and 15%, which at the midpoint would result in a net loss because management only expects revenue to be between $570 million to $590 million, down from $668.4 million in the fourth quarter. And if margins don't improve, 2017 could leave the company with a net loss. 

Now what 

The financial performance of solar companies is getting worse, and there's not a catalyst  for improvement on the horizon at the moment, particularly in the commodity solar market. Canadian Solar will spend most of the year trying to cut costs and develop manufacturing processes that will increase efficiency and lower costs. The other challenge will be the utility-scale solar development business now being extremely competitive and low margin. When you add it all up, the financial struggles that emerged in March will likely continue and that will keep me out of this solar stock right now. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Canadian Solar Inc. Stock Quote
Canadian Solar Inc.
$27.39 (2.57%) $0.69

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.