No matter what the market is saying, Canadian Solar (Nasdaq: CSIQ) is holding up better than most solar manufacturers right now. The company reported earnings yesterday, and while the numbers didn't blow anyone away, they weren't as bad as some are reporting.

The entire solar sector is going through a rough patch in the second quarter -- that much we know. What has been unknown, until recently, is who would be the winners and losers of an ongoing battle between manufacturers. When you take a step back from analyst expectations and look at yearly and quarterly comparisons, you see that Canadian Solar is holding up pretty well.

  • Module shipments were up 58.6% from a year ago to 287 MW.
  • Gross margin was 13.2%, down slightly from 13.6% a year ago and 14.7% last quarter. With the wild declines in margins we've seen at First Solar (Nasdaq: FSLR) and JA Solar (Nasdaq: JASO), this should be seen as a huge positive.
  • Earnings per share of $0.16 may have fallen short of the $0.28 analysts expected, but it's a three-cent increase from the first quarter, and this Fool isn't disappointed with that.
  • Diversification is coming slowly, but Canadian Solar did reduce reliance on Europe to 76.6% of sales, from 86.4% a year ago. This trend will need to continue as markets outside Europe begin to grow, so keep an eye on this area going forward.

Not out of the woods
Still, Canadian Solar has $912.4 million in short-term borrowings and another $183.3 million in long-term debt on top of that, so the balance sheet leaves room for improvement. And inventory spiked to $436.3 million, a sign that panels are piling up and demand needs to pick up quickly in the second half of the year.

Foolish bottom line
So results weren’t great, but we knew that the second quarter was going to be rough for most manufacturers. Compared with JA Solar -- which, even after accounting for an inventory provision, had a 4.0% gross margin -- Canadian Solar is doing fairly well. When Chinese manufacturing leaders Trina Solar (NYSE: TSL) and Yingli Green Energy (NYSE: YGE) report earnings, we'll see whether we can start including this company with the sector leaders.

For now, I would put Canadian Solar at the top of a second tier that includes JA Solar, LDK Solar (NYSE: LDK), and Suntech Power (NYSE: STP). For investors, that means higher risk and higher potential reward than the solar leaders.

Interested in reading more about solar stocks? Add your favorites to My Watchlist, and My Watchlist will find all of our Foolish analysis on those stocks.

  1. Add Yingli Green Energy Holding to My Watchlist.
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  3. Add Suntech Power Holdings to My Watchlist.
  4. Add LDK Solar to My Watchlist.
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