If you've been watching Evergreen Solar's
The recent slide accelerated after the company announced a recapitalization plan and fellow Fool Anders Bylund didn't have a positive response to the plan. As a shareholder I was less than pleased about the likely dilution -- and everything was made worse by a stock price that keeps plummeting.
But I don't think the plan is all bad, and neither should investors hoping Evergreen can turn things around.
It all starts with the investment thesis for Evergreen. Right now Evergreen is one of the highest-cost solar manufacturers at $1.88 per watt, but as its Wuhan facility ramps up, Evergreen could become a much lower cost manufacturer. If you believe management's projections of $0.90 per watt by 2012, Evergreen could be one of the lowest cost manufacturers. And it will have to be just to compete.
So if we look out two years and project the lower costs, where would Evergreen be? It would have higher margins, higher sales, and probably be very profitable. But it wouldn't yet have the cash to pay off $423 million in debt, and also wouldn't have the flexibility to expand its low cost operations. So what should Evergreen do? Try to ride it out and hope for the best?
If Evergreen can convert debt holders to equity holders now, it would leave a lot of flexibility if the current business plan plays out as management hopes. If it does, Evergreen could leverage the improved business to take out new debt (hopefully not convertible this time), and expand the business when the time is right.
This plan isn't without risk of course. If it goes wrong Evergreen could be left on the scrap heap with a load of other solar companies. For now I'm going to watch and see what happens. I may try to be opportunistic and buy shares when they dip but I'm not ready to put my whole life savings on Evergreen just yet. When fourth-quarter results are given, Evergreen can tell me if it's headed for the scrap heap or greener pastures. I would much prefer the latter.
More on solar:
Fool contributor Travis Hoium is a long time solar investor and currently owns shares of First Solar and Evergreen Solar. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.
First Solar is a Motley Fool Rule Breakers pick. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.